Why You Should Invest in the Stock Market

Pay yourself first: In this post, we will learn about the benefits of investing, how to set yourself up financially to get the most out of your investment life, and why you should invest in the stock market.

Today you have taken a huge step towards improving your financial future and we are here to help you on that journey.

I have been investing in US stocks for over 20 years. I made a lot of mistakes as a young investor and got hurt a lot when the dot com bubble burst. But I have learned from those mistakes, dedicating my life to investing in a great business and financially and personally. You are probably looking at the current market volatility and want some guidance on how you can benefit from it. And so a Google search found the title of why you should invest in the stock market.

Over the last 20 years, my portfolio has grown 21% on average per year. That may not sound like a lot, but thanks to compounding (which you will learn about shortly), those returns would turn $ 10,000 into over 50 450,000. Not everyone will achieve such amazing results. However, this is doable if you are committed to long-term investing and follow very simple rules.

There are different ways to invest your money and you can customize your strategy for your personal situation and risk tolerance. Our goal here is to teach you the basics of great investment so you can make better decisions and own your financial future. The lessons below are timeless and apply to any market situation.

Why you should invest in the stock market

♦ Owning stock means owning a part of the company.

♦ The invested funds work for you 24/7.

♦ Money invested can grow much faster than cash in a savings account.

Ever wanted to be a part of the owner of a great business? This is exactly what happens when you buy stock. You are buying a part of that company. As part owner, you are entitled to share in the profits and assets of that business.

You can benefit from owning stock in two ways.

1. The company may decide to return the money to its shareholders through dividends. This is cash that is paid to you to become a regular shareholder.

2. Business is growing and the price per share is rising. Once you decide to sell your shares, you keep them in your return pocket.

If the money held in a savings account is consumed by inflation, the money invested works for you 24/7. Unlike a bank account, if you invest in the right company, your core expenses can be multiplied. But before buying a stock you need to open a Robinhood Trading Account.

On average, the stock market has returned around 10% annually since 1974 (without factoring in inflation). That easily beats the 0.5% you’ll get by keeping your money in a savings account. By now you may have understood why you should invest in the stock market

Goal based financial planning

♦ Investing: Start small, but start now!

♦ $2,000 can turn into almost $100,000 after 40 years (at 10% return a year).

♦ Investing in stocks can help you pay for your biggest goals.

That 10% average increase may not sound like much, but given time, this interest compounds to produce incredible returns.

Imagine someone told you that you could turn $2,000 into $100,000 with no work whatsoever? It sounds too good to be true, but it’s completely possible if you understand compound interest.

The key element to remember here is time. The longer you have your money invested, the more powerful compounding becomes. That means the younger you get started, and the more patient you are, the greater returns you will reap in the future.

However, you don’t need $2,000 to get started. You can start small and keep adding to your investment over time. You’ll be amazed at how quickly your investment can grow. In fact, if you added $100 a month to that initial $2,000 investment, after 40 years you’d have close to $1 million.

You’ll have both winners and losers, but if you learn how to identify good companies, you’ll have some stocks that multiply 10 times (or more) in value over the years. Hope you understand why you should invest in the stock market

Compound magic for invest

♦ Compound interest is when the money you earn starts earning money.

♦ Compounding is the easiest way to become wealthy.

♦ The sooner you begin investing, the more time your earnings have to compound.

Compound interest is an investor’s best friend. Compounding is simply when the money you earn starts earning money. This means your stash is growing faster than if you were simply adding a lump sum every month.

So many people say “I can’t afford to start investing.” The truth is, you can’t afford to start investing, because time is the issue here, not money. Compound interest is the real silver bullet when it comes to growing your wealth and the earlier you start, the more powerful it becomes.

A certificate of deposit (CD) or a government bond over time might give you 5% per year. A 10% annual return is the historical average for the stock market. And 15% is what you could get if you learn how to pick your own stocks.

Had you invested that money, after year one, on average, you’re up 10% on your original investment? The year after, you make interest on your interest and so on. It’s like adding successive layers to a cake with each a little larger than the last. So if you’d consistently invested that money, after 50 years it would be worth over $300,000.

Why should you invest in the stock market? I hope you understand that. So start investing to have time.

Pay yourself first

♦ Saving 10% of your total income is a good goal.

♦ Set up automatic transfers into savings on the day you get your paycheck.

♦ If you pay yourself first, you won’t even notice there’s less money to spend.

Why you should invest in the stock market? This is when you realize. Then you decide that you can afford to start. Now the question is how do you create that investment fund?

If you’re someone who has trouble saving money, this is where the biggest change is going to have to come. You can’t invest without being a disciplined saver.

Instead of saving what you don’t spend, spend what you don’t save.

Think of this as investing in yourself. You need to learn to pay yourself first.

You already pay the companies behind your credit card, gas, water, electric, cable, and phone bills every month, right? Now, add yourself to the list

So how much should you pay yourself?

Aim for 10% of your total income, but anything is better than nothing. It may seem like a lot to those who struggle every month to pay the bills, but the less you have at hand, the less you’ll spend. Set up automatic transfers so your savings leave your account as soon as you get paid. You’ll be amazed at how fast you can adapt to spending a little bit less.

Ideally, you should be investing this money in the stock market, where its 10% average annual returns and compounding can begin building your wealth. However, if you know you’re going to need that money in the near future, it’s better to keep it in cash. This will ensure you don’t have to sell your investments prematurely and lose money in a down market. Once you’ve built up a cushion of emergency money, you can start investing.

Three step to saving

♦ Every dollar is an investment in the quality of your life.

♦ Build a cash cushion of 3-12 months of income before you invest.

♦ Track your spending by writing it down or using online tools to help you.

Why should you invest in the stock market? Now we will try to know it in 3 steps. Having a cash cushion is an important step before you start investing. Though it’s natural to want to jump right in and get your money in the market, this can be dangerous. A successful investor understands that over the short term your investments may lose money.

We recommend a long-term buy-and-hold philosophy when it comes to investing. If you put all your cash into the market, you may end up needing it in the near future. The market could be down at that stage, meaning you’ll have to sell your investments for a loss. If you have a cash cushion, you can leave your investments intact and wait for a recovery.

You should therefore try to build up a cash cushion of at least three months’ salary.

This may sound difficult, but it’s easy to train yourself to save money, and once you get in the habit of doing so, you’ll enjoy seeing your account balance go up every month.

Step-1: Retire short term debt

If you’re paying a high-interest rate on credit cards, you need to retire that debt. You can’t build long-term wealth while paying up to 20% on short-term debt.

Step-2: Treat every dollar as an investment.

This is a crucial mind frame to get into if you wish to become a successful investor. An investment is more than just shares. We make investments every day. Some of these are important, like the roof over our heads. Some of these are frivolous, like a new pair of sneakers you don’t really need.

Next time you pull out your credit card, ask yourself, “Is this the best investment I can make with this money right now?” You won’t put your wallet away every time you do this, but just practicing this routine can help you save a lot of money.

Step-3: Track your spending.

Ever come to the end of the month and wonder where all your hard-earned money went? It happens to us all now and then.

A good way to counter this is to start tracking your spending. There are plenty of apps available to keep tabs on where your money is going. You might be shocked to realize how much you spend simply on going out for lunch every day.
These are small changes you can make that can greatly increase your overall wealth.

How to Setting Up Brokerage Account

Timeline - why you should invest in the stock market?

♦ If you need money in the next year, it should be in cash.

♦ Any money that you don’t need in the next year should be invested.

♦ You should invest with a 5-10 year timeline in mind.

Go Long!

When choosing how much money to invest in the stock market, it’s important to consider how long it will be before you need that cash.

Here are two rules of thumb to follow when deciding the smartest, safest, and most profitable place for your savings.

Rule-1: If you need your money in the next year, it should be in cash.

The stock market can fluctuate greatly. It’s no fun to need cash for, say, a down payment on your first home and find that your stocks are down 50%.

If you’re house shopping, wedding planning, or car buying within the next year, keep those necessary funds in a savings or money market account. (Double-check that it’s FDIC-insured too.)

Rule-2: Any money you don’t need within the next year is a candidate for the stock market.

This is where the fun begins. And that’s why we encourage you to get saving now!

Any cash you don’t need in the coming year can go to work for you every day in the stock market. taking bigger risks and affording you larger profits.

When you invest with funds that you have no immediate need for, you protect yourself from the short-term fluctuations of the stock market. Over the course of a year or two, you could see your investment suffer a loss, but on a longer timeline, the stock market and great companies get bigger and more profitable.

That’s why you should invest with a 5-10 year timeline in mind. This will prevent you from pulling your funds out in a downturn and incurring a loss. Finally, we think, why should you invest in the stock market? You know that. If you like the article and find it informative, please comment and share. Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *