At some point, you’ll have enough money saved up where you’ll think, “I should probably invest this somehow.”
Below I explain why investing in stock market can be so powerful.
1. The best place to grow your money
Probably one of the best things about the stock market is that it has an established track record for yielding good returns, even for beginners (when done right, of course!).
If every year you had invested your savings in a low-cost ETF tracking the S&P 500 index (which represents the 500 largest US companies listed on the stock exchange) for the last 10, 20, 30 years, then you would have had a return of approximately 6-9% per year on average, beating most investors out there, professionals and amateurs alike.
This is the simplest reason to invest and is often at the core of why people buy stocks.
If you invest $10,000 in the stock market today and it gains roughly 7% per year, you’ll turn that $10,000 into $20,000 in just 10 years without adding extra money.
Now, imagine a longer-term example, where you’re both a good saver and a smart investor.
You invest $10,000 of your savings into the market every year for 30 years.
That’s $10,000 this year, another $10,000 next year, another $10,000 the year after that, and so on for 30 years.
So in total, you will have invested $300,000 in stocks over 30 years ($10,000 per year x 30 years).
And let’s assume you achieve the same average yearly returns we used above, 7% per year.
So you’ve invested a total of $300,000 over 30 years,
But guess how much you have in your account at the end of that 30 years.
That’s truly surprising.
That $10,000 investment per year for 30 years would now be worth $1,010,730.
2. You can start investing with little money
One of the attractive aspects of stock market investing, that you can get started with very little money and scale up, say USD 1,000 or less.
Starting business or buying real estate are great ways of investing but they require large amount of money to get started.
Through regular investing, you can turn $10,000 per year into more than a million dollars over 30 years.
Now, $300,000 of that million dollars is the money you directly invested each year.
But the other $710,730 is money you made from investing in stocks.
3. Easy to fit to your own schedule
You can still get started while working a regular job and learning to invest by participating in your spare time.
4. You do not need to interact with people
In other businesses, such as owned property, it requires lot of time and effort from the owner, including dealing with complaining tenants, organizing repairs, contracting mortgages, complying with local regulations, etc. Actually, studies after studies have demonstrated that when it comes to the stock market, the ‘less’ you do, the better your investment performance will be.
5. Everyone has access with low cost
One of the great things about the stock market is that it is widely accessible. You don’t have to be ultra-wealthy.
In fact, there are no laws that forbid people to start investing in the stock market, unlike for many other investment alternatives such as hedge funds and private equity investments, which are only legally available to the ultra-rich and institutions such as pension funds and insurance companies.
6. it’s a well-established way to invest
Regulations: To be listed on the stock exchange, companies have to meet an endless list of requirements. And then, once they are listed, they have to comply with very stringent regulations and reporting requirements.
The same applies to market participants such as exchanges and online trading platforms: they are all highly regulated.
This makes it very hard for fraudsters to take your money and run.
Transparency: The pricing of shares, bonds, and other listed securities is widely available on the internet and updated every minute.
Similarly, there is a lot of research available on shares, ETFs, bonds, etc.