Beginner investors are often confused when it comes to making their first investment. There are a lot of options to choose from, and sometimes, minimal funds to invest. The stock market is the best place to start. In this article, we will talk about the advantages of investing in stocks.
There are two reasons why many people make investments: to beat inflation and multiple their savings. If these are your reasons for getting into the investment game, then you should consider investing in stocks. Here are some advantages of investing in stocks.
Investing in Stocks is a Sure Way to Make Money
The stock market is always on the rise; billions of dollars in direct investments pour into the stock market monthly. Most retirement plans and programs hedge their funds in the stock market. This means one thing: The general price of stocks is sure to go up.
This provides a tremendous opportunity for investors who want to see their money grow in real-time. Some company stocks even pay dividends, which is a share of a company’s profit that is shared with its stockholders. If you hold some of the company’s stock, you are entitled to a share of the profit proportional to the percentage of stocks you own.
Investing in Stocks is the Best Way to Beat Inflation
Inflation is the continued rise in general price levels. It erodes the value of money over a while. The rate at which available price levels increase is called the inflation rate. The only way to protect your money from inflation is to invest it in securities that offer interests higher than the inflation rate.
When compared to other securities, stocks are the best options for shielding against inflation. The average return for the S&P 500 in the last 80 years has been 10.3%. This is against the average inflation rate of 4.1%.
This is why many investors have chosen the stock market for long term investments. Over time, the returns from stocks will match up and exceed the inflation rate. This helps to preserve and then increase your purchasing power.
Investing in Stocks Helps to Grow Your Money
Another advantage of investing is that it helps to grow your money. Stocks help to grow your funds through compound interest. Compound interest is an interest that is based on the original investment and accrued interest. The trick to maximizing profits from stocks is to start early and stay put for the long haul.
For example, if you invest $1,000 per year at the age of 18 at 8% interest and continue with it, you will have a little over $1,080,000 by age 70.
Suppose another investor starts investing $5,000 at age 40 with the same interest rate and continues for 30 years. In that case, he will only have $707,672 by age 70.
Don’t let that scare you if you are just getting started. It is never too late to begin investing. You simply have to stay consistent.
Investing in Stocks is a Patience Game
This might not sound like an advantage, but it is. The stock market isn’t a casino where you either make it big or go home broke. What makes stocks unique is their ability to multiply profits overtime. This will help you develop a long-term investment mindset.
If you do your research right, you can make millions from the stock market over some time. Some of the currently highest priced stocks were priced ridiculously low at some point. The experienced investors stayed, and now they are reaping the benefits.
To maximize investing in stocks, plan to stay in the market for at least three years. The stock market has its share of price swings, but it usually corrects itself within three to five years.
Investing in Stocks is Simple and Easy
Investing in stocks has gotten simpler over the years. You can get started by opening an online brokerage account. That accounts give you access to buy stocks.
There are different approaches to buying stocks. Your choice should depend on your level of expertise, funds available, investment goals, and risk tolerance. For beginners, most financial experts recommend entering the stock market through mutual funds or ETFs. You can read about the advantages of mutual funds and ETFs in our investment series.
Experienced investors typically invest directly in individual stocks. You can also invest in options on the stock market. Before you make a choice, ensure that you understand the risks and benefits of your choice of investment.
Investing in individual stocks can be capital intensive. Mutual funds and ETFs allow low-budget investors to grow their funds while setting their individual stocks eyes.
There are several advantages of investing in stocks, but your investment goals and risk tolerance also matter. If you are young and retirement is decades away, you can afford to take risks. The more risk you take in the stock market, the higher your possible profit or loss. People close to retirement age are recommended to start with safer investment instruments, such as mutual funds and ETFs.
Regardless of your choice, you can get started investing in stocks today!