5 Questions to See if Stock Investing is Worth It for You

I know a lot of people that have Retirement Plans through their employers but don’t know if they should start investing on their own as well.

After all, is stock investing worth it? Investing in the stock market on average yields 7% per year which greatly outpaces inflation so that money invested over a long period of time is worth more when it is needed later in life. Stock investing is worth it and the longer investors wait to get started, the more they will miss out on the value of compound interest over time.

It seems that most people understand that they can make money in the stock market so the real questions underneath are:

  • Is It Worth Investing With Only a Little Money?
  • Is It Worth Investing in Only a Couple Shares?
  • When is the Right Time to Invest to Make It Worth It?
  • Is it Worth Investing in Stocks Over Other Asset Classes?
  • Are the Risks of Investing In Stocks Worth It?

Is it Worth Investing With Only a Little Money?

You’ve heard the old adage: “Rome wasn’t built in a day”. In order to amass a fortune, you must first make your first dollar. If you can only invest a little now, at least that’s a little getting to put to work now. 

I’ll give you a few examples where investing only a little money can lead to huge potential. First of all, what is a little money? It’s different for everyone. For some, $500 is a little money. For others, coming up with an extra $50 to invest may seem like a lot. Let’s take two scenarios which should hopefully paint a picture of the power of a little money.

Scenario 1: Investing $25

Let’s say you want to start investing but only have $25 to get started…Well, get started! Open up an account on Robinhood or Webull and put that $25 to use. Here’s why:

Let’s assume the average return per year of the US Stock Market is 7%. That means that by investing $25, you’ll have the following amount after investing it per these average returns.

Initial Amount1 Year2 Years5 Years10 Years25 Years
$25$26.75$28.62$35.06$49.18$135.69

Now let’s assume  you could scrape up $25 every month for that 25 years. What would that look like?

1 Year2 Years5 Years10 Years25 Years
Total Contributions$325$625$1525$3025$7525
Total Value Compounded 7%$326.75$649.62$1760.29$4194.11$19,110.40

Holy smokes, you can see the spread start to develop as your small contributions are exposed to the power of compound interest.

Now, let’s say you consider $500 is a little money. Even with only the lump sum of $500 with average returns could yield you a pretty penny.

Initial Amount1 Year2 Years5 Years10 Years25 Years
$500$535$572.45$701.28$983.58$2,713.72

Maybe $500 is easy to save once but seems unrealistic for you come up with every month. Could you at least invest $100? If so, look how much you’re little nest egg would be worth.

1 Year2 Years5 Years10 Years25 Years
Total Contributions$1,700$2,900$6,500$12,500$30,500
Total Value Compounded 7%$1,735$3,056.457,602.16$17,563.31$78,612.56

The simple truth is, you can and should start investing even if you just have a small amount in the beginning. 

You can even try out an app like Acorn which allows you to round up all of your purchases with your debit card so that you can invest the change. By rounding up all my purchases with Acorns over the span of a month, I generally end up investing between $70-$90 per month. The money is invested so slowly that I don’t even realize it. You can get more info from our review of Acorns.

Is It Worth Only Investing if You Can Buy 1 or 2 Shares?

If you look at the stock market, its easy to be put off with investing when you see some of the stock tickers at $1000 or more per share. After all, if I want to buy a  single share of Amazon (AMZN) right now, it’d cost me $3500. How am I supposed to start investing with Amazon for that price. 

That’s another common misconception. A lot of new investors assume that the more expensive an individual stock is, the more valuable it is. A share price only has value determined by the number of shares available and the supply and demand for those. 

Let’s say two companies are identical with the only exception being that one issued 500,000 shares (Company A) and the other issued 1,000,000 shares (Company B).

If both companies were valued by the market at $20,000,000, Company A stock would be worth $40/share ($2 million dollars / 500k shares) whereas Company B stock would be worth $20/share ($2 million dollars / 1 million shares). Company A would appear the more valuable stock even though it has the same value.

That’s not to say Amazon isn’t as valuable as it seems; however. If you bought one share of Amazon in January 2017, you would have spent about $800. That means in less than 4 years you would have quadrupled your money. 

On the flip side, if you would have bought 20 shares of Coca Cola for $41.74 each (about $835) on that same day in 2017, those shares would be worth $51.05 which comes out to a 22.3% increase.

 That’s still a great return in less than 4 years especially when you consider that KO produces a consistent quarterly dividend as well. It does really illustrate how buying more shares doesn’t always mean better performance. 

Lastly, with apps like Robinhood and M1 Finance, you can buy fractional shares in many stocks. For example, if you want to buy Amazon stock but only have $100, you can buy a fraction of a share of Amazon equivalent to $100.

When is the Right Time to Invest to Make it Worth It?

They say the best time to start investing would have been right after the last recession. The next best time is today. 

The fact is, no one really knows what the market is going to do. Past performance does not guarantee future results. 

Even when the economy is doing poorly, investors wait for the perfect opportunity to start investing. Often, they wait and wait and miss multiple opportunities to start investing.

Rather than wait for the perfect signal or perfect opportunity, stop trying to time the market and allow time to go to work for you. Like we saw earlier, over the long term, the stock market yields an average of 7% each year. Even if you invest today and the market goes down tomorrow, over time it should rise up again. It has every time so far.

To further illustrate this, look at the stock market since the 2008 housing crash:

Even if you bought at the peak before the housing crash, today your investment would have more than doubled. If you had consistently been buying more shares during the recession, you would have been buying stocks on sale and further compounded your investment.

Whether you make a lump sum contribution to the stock market or you implement dollar cost averaging by sending a set amount each month on autopilot, getting started now is always the right answer if you are ready to invest.

Is It Worth Investing in Stocks Over Other Asset Classes?

It can be hard to compare stocks to other assets because of the many factors to consider.

Stock vs Real Estate

Let’s take Real Estate for example. Real Estate offers pretty heft returns as a result of the leverage applied when you purchase a property. 

Let’s say you buy a house for $200,000 and put up the standard down payment of 20% ($40,000). The housing market typically outpaces inflation by a small margin only so let’s assume it appreciates 3%. That means the home will appreciate to $206,000 ($6,000 increase in value). Since you only invested $40,000 of your own money though, this is an increase on capital invested of 15%. That’s a pretty good return right?

Another benefit is that with rental properties, you could collect rent which means that the burden of the mortgage is removed as long as you can also pay for any issues that come up with the tenant and fixing the place up between tenants. Having that cash flow can definitely make real estate enticing.

Drawbacks to real estate include having to pay additional taxes for the property each year as well as the mortgage interest of the loan (similar to buying stock on margin). Those will surely eat into you profits but with mortgage rates so low today, the value increase of the property should outpace the loan interest. 

Another drawback to real estate is the fact that it is extremely illiquid. If you want to sell a property, it can take months depending on market conditions. That also means that if you run into a situation where you can’t afford the home but also can’t sell it, that it will be taken from you. There are a lot of risks in real estate that are minimized in the stock market.

One way to benefit from Real Estate in the stock market is to purchase shares in a Real Estate Index Fund such as Vanguard’s Real Estate ETF (VNQ). This allows you to invest in real estate without the risk and collect reliable income through quarterly dividend payouts. 

This is from the Vanguard website and shows how VNQ fared against the S&P 500. Stocks still outperformed real estate but still had pretty good returns so it may be used to diversify your portfolio as well.

Another option is to invest in REITs such as Fundrise which allow you to pool your money into a professionally managed real estate portfolio. You collect quarterly payouts for the duration of the REIT and receive your capital investment back once the term of the REIT is complete. This could give you the opportunity to invest for income which can be reinvested or simply repurposed. It’s up to you.

Gold and Silver vs Stocks

Precious metals are another asset class that people tend to talk about a lot. In fact, gold typically receives its highest value increases during times of uncertainty in the the stock market. When the stock market is volatile, gold usually benefits.

Some say its better to have gold and silver because they have intrinsic value and in the event of a market crash, they will be valuable still. 

I somewhat disagree with this because if the stock market crashes so hard that everyone loses everything, the last thing people are going to do is trade you food and services for gold coins. 

Also at the end of the day, the true value of gold is all perception. It’s just a rock. Is it really intrinsic value? We as the human race can wake up and say gold is out of style and drive the perceived value to zero. Is this probable. No…just something to think about.

Still, in the event of a currency crash, it would be a way to hedge some risk.

Let’s see how it did against the S&P 500:

Not so great. If you are using gold as a hedge in case of a really bad market crash, it may be a smart idea to have some gold but I certainly wouldn’t choose it as your entire portfolio over stocks. I don’t think any successful investor would.

You can purchase ticker symbol GOLD or VNQ at any brokerage account such as Robinhood, Webull, or TDAmeritrade to name a few.

Are the Risks of Investing in Stocks Worth It?

The benefits of investing in stocks stem from having a sound investment plan. If you manage to avoid the following critical mistakes, the risks of investing in stock should be easily outweighed by the benefits.

Most of these stem from lack of discipline and failing to stick or have an investment plan or strategy.

Don’t Try to Time the Market!

You’ve heard “Buy Low and Sell High” but the fact is most people do the opposite! They get greedy when they see an opportunity that has taken off and they get scared when their investment takes a turn for the worse.

The media has a way of making us second guess ourselves and tuning them out can be one of the smartest things you do. The truth is no one can really predict exactly what’s going to happen. As a result, if you put too much stock (no pun intended) in what analysts are saying, you will be paralyzed and never start investing. 

On the flip side don’t invest in something just because everyone is excited about it. Chances are they are excited because it’s already had big moves and you are experiencing FOMO (Fear of missing out). Psychologically, people make rash investment decision due to FOMO which lead them often to buying high rather than buying low.

This prevented a lot of people from getting started with investing due to not wanting to buy at the top. What happened? For the most part, 2018 and 2019 were 

Don’t Invest Money You Need to Survive

Simply put, don’t invest money that you need to pay rent or groceries. If you are investing, you should be investing money that you don’t need to see for a while and you want to give a chance to grow into more money at a much later time. 

If you invest money that you need to be available at a moments notice, when an emergency arises, you will be forced to take it out of the market even if it is down in value. That’s not good for your financial health.

Time is the best friend to the investor! Don’t kick out your best friend because you were unprepared! 

Have an emergency fund for these types of issues and a buffer in your checking account so that you never have to touch your investments until the timeframe you envisioned has come to maturity.

Don’t Invest Money That You’ll Need in Less Than a Couple Years

I’d prefer you not invest money that you won’t need for 5 to 10 years but at a minimum, don’t invest in stocks if you are going to need it back soon. Stocks are volatile and there are short term losses quite frequently. 

By having a longer time-horizon, you minimize your chances of coming back to a total return that is underwater.

Manage Your Portfolio and Adjust Risk Tolerance

The closer you get to needing your investment, you should start reducing risk. It’s ok to be in riskier assets with high returns early on when you have 20 years to let it weather storms and take advantage of large runs up in value. 

If you are retiring in 6 months, you really should reduce your risk by weighting your portfolio in less risky assets.

Need help managing your portfolio? There’s no shame in that! Talk to an Investment Advisor or Financial Planner to better assess and manage your accounts. They will give you investment advice that’s tailored to you and remove the guesswork.

Follow those tips and I think you’ll find that investing in stocks is definitely worth it. For more information on getting started with investing check out our beginner’s guide!

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