Why Should I Invest Stocks? – 3 Reasons

why shoud i invest stocks?I was talking about the stock market with a few friends from work. We all have various different stocks and periodically discuss how they are doing and get ideas from one another about different equities and ticker symbols. Well one of the guys that just started working with us asked, “Why should I invest stocks?” I guess it never really dawned on me to ask that question.

When I was in high school, one of our teachers taught an after school program that allowed us to trade stocks in fake accounts in order to teach us how it works. This is called “paper trading” because it doesn’t actually trade real money. Well, that spring, I turned my “$10,000 account into $13,000 and I recognized instantly the power of the stock market.

Fast forward to today when a new acquaintance asked me the question, “Why should I invest stocks?” I was lucky enough to have this question answered to me when I was a junior in high school so I never really thought about the answer to this until recently when I went to answer the question for my new co-worker. The following is how I answered him and I wanted to share it with my readers as well.

Invest to Make Your Money Grow

People invest in stocks because they want to make their current money grow into more money. Pure and simple. If someone has $100 and puts it in a bank account that earns 1.5% interest over the year, after 10 years they would have $116.19. The average rate of inflation is 3% so technically having money sit in a savings account at 1.5% is losing your money.

Let’s say that $100 is in an investment (such as stocks) that makes an average of 10% annually for ten years. This is the average performance of the S&P 500 index from 1928 to 2016. That $100 would be worth $271.84. That’s quite a difference! Obviously, the more your invest, the more your can potentially make.

Investing Allows You to Plan for Goals

Do your want to someday buy a house? Maybe your want to pay for your daughter’s wedding or maybe your want to pay for YOUR wedding. Is there a trip to another country that your’d love to save up for? Well depending on how far out these goals are, investing in stocks may achieve these goals faster than a savings account.

Most commonly, people invest for retirement also and use stocks to amass wealth. Depending on how far retirement is, this may be a good or bad idea. We’ll get more into this later.

Own Part of A Company That You Believe In

investing can be incredibleIf your own stock, your own part of a company. The more shares your own, the larger stake in the company your have. Someone that has 100 shares of a company is 10 times the owner of someone that only has 10 shares of stock. Is there a brand that your think is incredible and that your believe is going to change the world? If someone said your had the opportunity to get in on that company and benefit from its success, would your take them up on that offer? Well that’s what owning stock does.

Let’s say your have a favorite coffee shop and that coffee company has just opened 30 shops in your city. You might be thinking, these shops are popping up all over the place! Well if your believe that the company is going to amass incredible wealth as a result of this change in your surroundings, your could invest in their stock and profit if your investment grows.

Note: The reason I’m using the example of a coffee shop is because I actually knew someone in 2011 that told me a story about how he saw a small coffee place opening in Seattle, WA of the United States. He noticed this company was literally taking over the city.

He took $10,000 and put it into that stock (in 1990.) At the telling of the story, he had amassed that $10,000 investment into over $300,000. Now I haven’t seen him in the last 7 years because I changed jobs. I don’t know if he ever sold his stock shares of Starbucks, but if he didn’t, it would be worth in excess of $1,400,000 as of the writing of this post.

When Should I Start Investing?

Don’t wait around on the sidelines. As we already discovered, even a small amount can make a huge difference. If your have a lot that your want to invest, then your can do that. If your only have a small amount to start with, start with that. The most important thing is to take control of your money and invest it into something that is going to grow and help your achieve your goals.

You can do this a couple ways. Either start with a small amount right away and start investing that and let it collect value over time or keep adding to your investment weekly, monthly, or yearly and grow your investment faster. Whatever your decide, taking any action at all will be a step in the right direction for investing in your future.

How to Determine the Amount to Invest

how much should i investThis is a very personal decision. Obviously your need to determine if your should invest based on your unique financial decision. For example, if your have 5 high interest credit cards with a balance on them, your’re way better off paying off your debt first. If your are living pay check to pay check and have to decide whether to pay the gas or electricity, focus on your bills and do not put your money in the stock market.

Only invest money that your are willing to risk. After all, all stock investing comes with inherent risk! The reason your can make > 1.5% interest in stocks vice having it in a bank is because your’re assuming some amount of risk for the possibility of increasing your investment. Historically, as we pointed out, the S&P 500 has gone up an average of 10% a year. Some years, it went up more and some years it lost money. You never know how the market is going to go exactly.

This uncertainty actually leads me to the “100 Rule” which is a shortcut method of determining what many advisers recommend for a balanced portfolio. Take the number 100 and subtract your age. Whatever is left is the percentage of money that your should allocate (at a maximum) in stocks. The rest should be maintained in cash or fixed rate assets like CDs or bonds.

So if your’re 40 years old, 100 – 40 = 60% is the maximum amount of money your should invest in the market.

Where Can I Get Started?

There are many ways to get started with investing. Check out my article on how to invest spare change where I show your an app that rounds up purchases your make every day and invests the change in an account for your. If your’d rather invest in companies like I described above and want to invest in actual stocks, your can start investing using Robinhood which is an app that allows your to trade stocks without paying any commission fees.

There are many ways to get started and we have lots of information on this site to show your the basics. If your have any questions or want to share an experience or add to a discussion, please feel free to do so below. Also, if your know anyone that could benefit from this article, please share it with them. I want to make sure as many people as possible learn how to take control of their future.

Let’s start investing!

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16 comments

  1. Lots of people dont understand that investing is a long term way to make more money. lt helps to simply put your money in it and sort of forget about it. Meaning don’t go in and look at your stocks and how they are doing every second of the day. Its a waiting game.

    All my stocks, except the highly volatile ones and crypto, I buy, and HODL 

    you’ll see results eventually.

    1. I completely agree. I only have a little in cryptocurrency but can see that there will be a lot of opportunities for it once it ingrains itself in furthering technology.

  2. Investing is one of the things I WISH I had been taught about earlier in life. I never really knew of the power of investing until the last year or two and my wife and I have conservatively started. It’s crazy how the banks give you so little in percentage, yet the money you invest in them, they are investing in high yielding stocks and accounts. Thanks for the great article on its importance. One thing I have been told, especially with how the market is doing now, you have to be in for the long haul and not panic when it takes a dip. Over time it has always shown growth! 

    1. The market has been on a dip for two months. Some see it as a buying opportunity while others are worried that it hasn’t found the bottom yet. Either way, over time it will rise above its current price if history is accurate.

  3. I know very little about investing, but you’ve given me plenty of food for thought, here. Thanks for the tips that you had left for the regular guys, like me, who are virtually clueless. I’ll be checking out your article on investing spare change; at first, to be honest, my reaction was “What the heck?” but I see how an app that rounds up everyday purchases can eventually go a long way toward enabling someone who wants to invest, with the wherewithal to do so. I also like the Robinhood app that you had had mentioned, as well. You’ve opened my eyes; I wasn’t aware that there were so many ways to get started. Thanks for the post.

  4. Thank you for sharing with us this fantastic article on stock investment.I am amazed with this article because I didn’t get the value of investing in stocks but I am now getting how fantastic it is.

    In my country there are many companies which are in charge of stocks investment but I was not interested in them.

    I am going to try this investment .

  5. You really are making a good point, it really is a wise thing to invest your money, just before i got into your article i have been thinking of my money in a certain store where i deposited it to get building materials from, Now that you talk of investing i really see that i made a mistake, they have made lots of interests with my money and i have not taken the building material , but if i had invested the money i would have been having it multiplied.

  6. Hello Eric,

    Thank you for writing this article on stock investments. I have been really worried about my 401K and whether I should take it out. I keep hearing about how the market is going to crash and how a big recession is coming. Many gurus are saying to take our money out of the market and put it into real estate. 

    The problem that I have right now is that I am still between jobs and my mother recently had surgery which required more rehab afterwards on her leg. I no longer work with the company that I had my last 401K with and it grows a little bit every year, but not as much as if I were still contributing to it. I thought about rolling it over to a self-directed IRA. I just want to explore my options before making such a costly decision in terms of penalties. 

    I am trying to grown an online business, which is why I have been hesitant to go back to my regular architectural job. I’m learning that the stock market usually always goes back up after every crash. So those who know when to take their money out and jump back in usually make the most money on the way back up. I am interested in learning more about doing personal training, since I don’t think these brokers always have our best interests in mind. I may look at the app that you recommended. 

    I feel like I need to educate myself more on which stocks are better to jump into and take more control without being pressured or influenced by a broker looking to make money with other people’s money. I appreciate you walking us through the importance of stock investments and look forward to your future tips.

    1. Wow! I’d like to address a couple of the things you mentioned. First of all, whether a recession occurs or not, there are experts on both sides. Some think that it’s imminent and some thing the market is about to rebound. I have learned that no one really knows. The best way to protect yourself is diversify as much as possible. 

      I’m actually a little too heavy currently in stocks and the last couple of months I took a small beating. I know though that all bear markets are short lived and I have enough time left to not worry that much about the dips. Someone 2 years from retiring though would probably really stress out watching the market drop almost 20% and rightfully so.

      Luckily though, I redistributed my investments recently and although I’ve lost some over the short term, I would have lost more.

      Instead of choosing to invest in one thing over the other, I’d say if possible, spread your investment capital across as many different types of investments as possible. Stock, bonds, real estate, and precious metals all have something to offer an investor and can help balance each other out if one of your investments takes a downturn. 

      Even in stocks, spreading it across different industries helps even out the growth since some industries like tech and health are riskier than say retail and utilities.

      You’re on the right track though, keep researching and never stop learning because no one cares about your money more than YOU! 

  7. I did not realize you could invest in stocks through an app and not pay commission?  That’s absolutely wonderful, and it rounds up the change from purchases?  How techy the world has become even when it comes to investing.  Let me ask you this, I’ve been thinking of investing in real estate, but I know that can also be risky.  I mean, if the people don’t pay the rent then it could become negative like you were talking about with the savings accounts.  Do you think the stocks are a better investment overall?  I’ve been wanting so much to get my money working for me in a better way!

    1. Great question! I can’t tell you if investing in stocks is better for you than other methods since it really depends on a number of personal goals such as how long you want the money to be invested, how soon you will need to access it and how much risk you are willing to accept. What I can say though is that there are many ways to invest your money besides a bank account. 

      Most of my recent articles have been about stocks. I will also be discussing other ways to invest money too such as the real estate app Fundrise which allows you to invest in Real Estate Investment Trusts (REITs). This is basically like owning a percentage of a portfolio of privately purchased real estate. Imagine it as stock but for real estate. 

      I will also be reviewing sites such as Lending Club which allows you to lend money to a large amount of people in the form of micro loans and you benefit from the interest that accrues while they pay it off. You can literally be your own bank. 

      Getting your money to work for you is crucial to building wealth. There are so many ways to do this and I hope to show you and all readers what those different methods are. Of course, everything I review and show you, I will personally try and review from a first hand experience so you know I but my money where my mouth is!

  8. Hello,

    Great article!

    I have to admit that I have always wanted to look closer at investing, but only had thoughts of it. Thinking about risks and gambling away my hard earned money (that’s what was in my mind). I also had the belief that I had to have a lot of money to invest, but after reading your article some of the beliefs and myths are not necessarily true or not that cut and dry. I understand now of course you have to have money to invest, but nowhere near the amount of money I believed you had to have. This is great news to me!

    Your article has given me a whole new perspective. Your article has provided some sensibility. My investment experience is only to a level of trusting the experts, 401K and even a personal IRA account. Letting them take my money and basically do as they please. So far I can’t say I’ve lost with allowing the experts to handle things (though I’m not rich), I’m certain they have made plenty of money from my money.

    I would love to get more involved with investing my money, but really how could I feel comfortable with doing that? (not a question you really have to answer, just a question in my head). How to invest my spare change helped answer that question in my head. Investing using  Robin hood also helped me to seriously look into the possibilities. 

    For the sake of comfort-ability, I believe your site can be referenced as a one stop shop for educational purposes for sure!

    After reading your article, I wanted to read more of your articles on investing. Book marking your site was my next step!

    Thanks so much for your relevant, useful, and insightful article on why we should invest!

    Diane

    1. Thanks for the bookmark and also thanks for reading so much on my site. I will be posting quite a bit of great content. I eventually plan on writing a couple of guides that will be downloadable. This is on the not so distant horizon so keep a look out. Also, I forgot to mention, the guides will be free as a thank you to all for following the site!

      As for IRA’s and 401k’s, I still think these are important investment vehicles. Like you said though getting more involved is also good. I have a 401k but I actively invest also to help diversify my wealth.

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