Should you invest in stocks?
Well, you’ve probably have heard of people who have made it big by investing in the stock market. You could probably have someone close to you who made a lot of money in the stock market without any stock-picking knowledge.
But this isn’t a very good reason to start investing yourself.
There are far more who lost most of their wealth by investing in stocks. How can you tell that luck will favor you? And even if you could, how long could you stay lucky without knowing what you’re doing?
So, the question still remains: is it smart to invest in stocks?
The short answer? Yes, it is. Even if you’re not a professional manager or genius.
There are too many benefits to list, but there are particularly 5 benefits of stock market investing that stand out and can be applicable to the average Joe.
So, let’s take a look…
1. Protection Against Inflation
Here’s a reality check. Your money loses its value every year. That’s because the prices of goods go up over time and therefore your purchasing power down. It’s called inflation.
The interest rates that banks offer you are generally far lower than the inflation rate you will have in any given year.
In other words, if your money remains as cash, there is absolutely zero chance it will catch up to inflation and it is a certainty that it will lose its value over time.
By putting your money in a broad market index fund and essentially “following” the market, you ensure that you will stop worrying less about inflation and more about what gains you will make after you beat it.
2. Capital Gains Tax
Here’s something about taxes on gains from stocks that is not certain: how much you will pay.
If you hold a stock for less than a year, your gains are taxed as ordinary income, which can especially hurt you if you belong in a high tax bracket.
But if you hold a stock for more than one year instead, you will pay tax for capital gains. I love this about stock market investing…
The capital gains tax rate is generally lower than the personal income tax rate.
It, of course, varies from country to country. For example, in the US it can range from 0% to 20% depending on your income level. But in a lot of European countries the range can be higher.
Now, that means you will have to hold stocks for at least a year. But to be frank with you, most benefits of stock market investing can be only realized by investing for the long-term. So, just stick to your investments and be patient.
Speaking of long-term…
3. Best Long-Term Returns
When you compare the long-term returns of the stock market to those of other asset classes, you get the sweetest benefit of all.
The US stock market has been on an uptrend for decades, regardless of how many crises the country went through. Actually, it has yielded returns of a little more than 10% on average over the years.
Acting on such a long history of data that proves the stock market keeps rising over time is the wisest thing someone could do. Investing in a broad market index fund and sticking to it is a solid strategy that a clueless investor can follow and profit big time in the long-term.
You’ll also be glad to know that most traders and mutual fund managers fail to do better than those index funds over time. There’s no sense in spending time and energy to try and outperform the market if you just want to grow your money in an easy and safe way.
Performing as well as the market would be exactly what you need. And you know what they say… If you can’t beat them, join them.
4. Passive Income
Despite the fact that the stock market can offer great returns over time, if you want liquidity, it got you covered again.
A lot of companies distribute a portion of their earnings to shareholders which is called “dividend”. By investing in companies that keep growing in earnings, not only do you stand to sell at a higher price in the future, but you also create a nice stream of passive income along the way.
Not all companies offer dividends though. And not all funds do either. Before you invest in any of them, see if they have a dividend distribution policy.
A lot of companies prefer to reinvest all earnings into their businesses. Likewise, some fund managers will receive dividends and reinvest them into their holdings for you without asking.
So, keep this in mind if you are interested in passive income.
5. Flexibility
Last but not least, one of the most important benefits of stock market investing is the flexibility that it offers to anyone interested.
Do you want to outperform the market? Fine. You will have to work hard, but you can do that.
Do you want to invest but you’re an old dog that won’t learn new tricks? Great! Pick an index fund and just keep adding to it.
Do you want passive income? No problem… Dividend growth investing is for you.
Do you merely want to speculate? Well, it’s your money… You can trade commodities, derivatives, stocks, and funds by choosing a broker who offers a great variety of securities.
Stock market investing is indeed flexible, no doubt. It can appeal to speculators all the way to risk-averse savers who appreciate a good night’s sleep without worrying about their money.
Conclusion
No matter what your experience with the stock market is, these 5 main benefits of stock market investing make it a no-brainer that you should use it to grow your money eventually.
No matter what happens, the stock market has been going up for a very long time so anybody who decides to invest in it is probably going to be rewarded handsomely over the years.
Besides that, you still can’t refuse that your money’s value is going down year after year and you need to protect it somehow. The stock market has been beating inflation by a wide margin for a very long time, making it the best place for you to put your money.
I hope this article helped you see how you can benefit by investing in the stock market. If it did, please share it with others using the social media buttons.
And if you want to ask anything, leave a comment down below.
Thanks for reading and good luck with investing!
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
