Putting your money in a low interest savings account is not such a good idea especially if you have big financial goals such as buying a house, sending your kids to college or saving for retirement . The only way to get more money is to make money work for you by investing it. Investments will generate more money for you in the future through interests and price appreciation. In other words, you invest to create wealth.
There are numerous ways on how to invest your money. You can invest in bonds, funds, stocks, stock options, antiques, jewelry, luxury watches, artworks, real estate and even luxury handbags. It all depends on your goals, preferences, time, capital and risk tolerance.
Although there are many investment instruments to choose from, the stock market is a good place for long-term growth to invest your hard earned money . Here are the reasons why you should consider investing in stocks:
1. Best Potential for Growth
Stock market investing is risky. The stocks go down a lot. However, there is a pattern that has always stood the test of time. After each major crisis, the value goes up a lot. In other words, if you think long term, the cumulative gains always outpace the cumulative declines.
Although the most volatile, history has proven that stock market investing gave a high return in the long run. Thus, the rewards definitely outweigh the risks.
2. There is More Than One Way to Invest
Depending on your financial goals and investment appetite, there is no single formula in stock investing. You can mix and match everything. You can invest directly or indirectly through mutual funds depending on your time availability. You can do simple investing or you can do trading if you have advanced knowledge. You can play it safe by investing only in blue chip companies or if you have a high risk tolerance, you can venture into small caps companies also. Again, it all depends on you. The key is to diversify.
3. You don’t Need a Big Capital
Unlike other investment vehicles such as real estate, you don’t need to have a big capital to invest in the stock market. Most brokerage nowadays will let you open an account even with zero dollars. There is also no required frequency nor amount of additional contribution. It all depends on how much you can afford to invest.
4. Trade Anytime and Anywhere
As long as you have an internet connection and a smartphone, you can trade anytime during market hours and anywhere at your convenience. Gone were the days wherein you needed to spend so much time trying to contact your broker on the telephone in order to buy and sell stocks. With technology, you can trade with one click of a button. It only needs a minute or two of your time.
5. Earn Passive Income
Earning from stocks through dividends and price appreciation is the best example of passive income. Imagine yourself earning income even while on vacation with your loved ones. That’s passive income and stock investing can do that for you.
As an investor of a company, you are entitled to receive a portion of a company’s income through dividends despite little or even no effort on your part. Big companies have capable and qualified managers who take care of running the company.
6. Advantage of Compound Interest
Compounding is the process of generating income from your capital’s reinvested earnings. It means you are earning interest on your interest over a period of time. Albert Einstein referred to it as “the greatest invention the world has ever produced” because it is a way to double your money.
If for example you bought Apple shares worth US$10,000 in 1980, in 2017 that initial investment is now worth over US$ 2.7 million through compound interest.
Updated version. First Published in Pinoy Smart Living on 04.09.2019.