When I was in my early twenties, I had no interest in stock market and have never thought about investing. I got married at 27 years and had started work for about 2 years. At some point, we have some savings and have never thought of growing the money. We simply leave the money in the bank and save about $200 in some endowment plan recommended by my financial adviser.
I seriously thought that was enough...
Then 2008 came. The global financial crisis struck and the stock market tanked. The economy was bad. Many people got retrenched. My wife and I were fortunate that our jobs were safe.
One day, my wife mentioned that "Hey the stock market is down so much. Maybe it's time to take a look. "
"How to 'play' the stock market?" That was my misconception back then.
I don't really know what to do or how to do it. So I asked my mother in law who has far more experience than me. She recommended her broker to me and I opened an account.
During that time, I got to know my friend, Andrew. He was a banker back then. We played tennis regularly and he will share some investing ideas with me. I was really intrigued by the companies that he shared and I followed him to invest in certain companies. The results were very good.
All these led me to the rabbit hole of learning to invest and making money in the stock market.
Long story short, this year I'm 42 and have been through more than 10 years of investment. I have dabbled in buy and hold, dollar-cost averaging, short term trading and trading options.
I have made money and I have also lost money.
I don't have a million-dollar portfolio to show you but I want to share the message that at some point, you’ll have enough money saved up where you’ll think, “Wow, I should probably invest this somehow.”
I've compiled a list of 10 compelling reasons why you should invest in stocks, which I'll go through below. I offer my two cents on why stock market investing may be so effective.
Now, all information shared here is for educational purposes only and should not be taken as investment advice. You can implement this at your own risk and after consulting your financial adviser.
Are you ready?
1) To Grow Your Money, Buy Stocks.
The most basic cause to invest, and it's frequently at the heart of why people buy stocks.
When done right, you can grow the money you invest by anywhere from 7% — 10% per year over the long term.
If you invest $10,000 in the stock market today and it gains roughly 7% per year, you’ll turn that $10,000 into almost $20,000 in just 10 years. (show screenshot)
Think about that.
Imagine 10 years ago you put $10,000 into an account, invested it in some stocks, made some trades, and now 10 years later you have your original $10,000 plus another $10,000 you made from investing.
Or, imagine a longer-term example where you’re both a good saver and a smart investor. Imagine you invest $10,000 of your savings into the market every year for 30 years.
That’s $10,000 this year, another $10,000 next year, another $10,000 the year after that, and so on for 30 years.
So in total, you will have invested $300,000 in stocks over 30 years ($10,000 per year x 30 years).
And let’s assume you achieve the same average yearly returns we used above, 7% per year.
So you’ve invested a total of $300,000 over 30 years — but guess how much you have in your account at the end of that 30 years.
You know it’s going to be more than the $300,000 you invested over 30 years, because the money will have grown because you invested it in stocks.
But it’s how much it’s growth that’s truly surprising. That $10,000 investment per year for 30 years would now be worth more than 1 million.
The important point is that investing in the stock market can make your money grow much larger over time. And that’s the #1 reason people invest in stocks.
2) Invest in Stocks Because They Always Go Up In The Longer Term
Overall, stocks have tended to rise over the last 100 years.
Yes, there have absolutely been nasty crashes like 2008 GFC, pullbacks, and periods of bad performance. But overall, stocks have formed a steady march upwards as the U.S. and global economies have grown.
For example, here’s the S&P 500 (which is a group of 500 large companies) from January, 1928 — July, 2019.
While there are lots of ups and downs along the way, the market has generally trend upwards. And if you bought stocks and held them for decades, you would’ve made a lot of money.
In fact, just one single dollar invested in the shares of small companies (known as small cap stocks) in 1926 would be worth nearly $40,000 today!
Many people invest in stocks simply because the odds are in their favor that over time, the market will go up and earn them money.
3) Utilise The Power of Compounding
I showed the power of compounding a bit above, but here’s the basic concept:
If you earn a good steady return on your investments (nothing crazy, just a good return) over a long time period (like 30, 40, 50, 60, or more years), that investment grows WAY bigger than seems possible.
For example, we covered above how investing just $10,000 per year for 30 years while earning a 7% yearly return turned into well over a million dollars.
But let’s look at an even longer timeline.
Let’s say you followed that same strategy (investing just $10,000 per year and earning 7% returns per year) for 60 years, instead of just 30 years.
Now your regular investment of just $10,000 will have grown to an astounding $8,104,668!
Albert Einstein once described compound interest as the “eighth wonder of the world,” saying, “he who understands it, earns it; he who doesn’t, pays for it.
Bottom line?
If you start early, save steadily, and invest intelligently, your money can grow in truly amazing ways over time.
4) Invest in Stocks Because Your Cash Will Lose Its Value
You’ve probably heard of inflation before, but it’s sort of a strange concept.
To put it simply, think of inflation as the slow but steady force that makes things cost more over time.
I remember going to a movie for $3.50 in the 1980s. Now it costs me $13.50 to go see a movie. That’s largely because inflation makes the price of products and services go up over time.
What that means for you is that your hard-earned money is slowly losing its value over time.
That’s scary.
For example, if you save $10,000 this year and put it under your pillow for the next 30 years, the same $10,000 cash will probably buy you way lesser things.
What I meant is that the money won’t be worth what it was worth when you first earned it.
So if your $10,000 today could buy you an incredible trip around Europe, in 30 years when you take it out from under your mattress it may only be able to buy you one week of Staycation.
Inflation can vary over time and I’m not going to get into too much detail here. But just remember this: When your money is sitting in cash it is steadily eroding in value.
How fast does it erode? That depends on the current rate of inflation.
Inflation on the rise due to massive printing of money
Since the year 2000, the annual inflation rate has mostly been between 1% — 4%. That means every year your money’s buying power erodes by 1% — 4%.
If you deposit your money at your local bank, the interest is not even 1%. You can’t earn enough to avoid inflation. Investing in the stock market could earn so much more.
Think of it this way: If you have enough money saved up to tour Europe today, and you put that money under your pillow, in 30 years you’ll be able to do a Staycation.
Invest wisely in the stock market, in 30 years you’ll be able to tour Europe and other parts of the world!
5) Invest in Stocks Because They’re Easy to Invest In
If you’re fortunate enough to have some savings, you’re faced with a wide range of places to invest your hard-earned cash.
You could buy real estate, start a small business, invest in a mutual fund, collect precious watches, and much more.
What’s great about stocks is that they’re relatively easy to invest in. All you need to do is to sign up with an online trading broker (for example, Fidelity, Vanguard, E*TRADE, TD Ameritrade, Tiger Brokers or some local brokerages like OCBC Securities, UOB Kayhian etc), set up the account, deposit some money and you are ready to buy some stocks.
I’m not suggesting you follow some Youtubers blindly to invest. There’s definitely research to be done along the way to make sure you’re making the right investments for yourself.
But compare buying stocks to buying real estate or investing in a small business. Stocks are fast, easy, and cheap to trade, whereas real estate and many other investments are not.
Stocks are often called “liquid assets,” which just means they can be turned into cash relatively quickly.
For example, if you had $100,000 invested in the market at 3 pm on a Wednesday and you wanted to get all your money out right away, you could most likely turn that million dollars into cash in a few minutes with just a few clicks.
On the other hand, an “illiquid asset” may take time and money to turn into cash. For example, if you own some expensive paintings. It would take you weeks (maybe months) and likely some money to find the right buyer and sell your paintings at a fair price.
A lot of people invest in stocks because they feel like their money is never far away and can always be called home in an instant.
6) Get Steady Income From Dividend Stocks
Dividend stocks are great because they pay you real hard cash on a regular basis.
Depending on the dividend stock you buy, it could pay you cash ranging from 1% up to 10% (and beyond) of the total money you invest, every year.
For example, let’s pretend you buy a portfolio of 10 dividend stocks that overall pay a dividend of 4% of your total investment. And let’s pretend you’ve just retired after a long and successful career, so you’re comfortable investing $500,000 of your life savings into this portfolio.
Every year, that portfolio of dividend stocks would pay $20,000 in cash into your account just for owning them. You can just calculate $500,000 investment x 4% annual dividends = $20,000 per year.
Most dividends are paid quarterly or twice a year, meaning that $20,000 in dividends would arrive a little bit at a time throughout the year. And that doesn’t even account for the likelihood that those stocks will go up over time, which would make you even more money!
So this portfolio is like a golden goose where it will lay eggs for you regularly. Retirees tend to like dividend stocks because regardless of whether the market goes up or down, they receive a steady dividend check or money credited to their bank account.
7) Invest in Stocks to Have A Big Nest Egg For Retirement
Many people invest in their retirement accounts because they want to have a nice big nest egg to live off when they retire.
I want to emphasise this point again and again.
If you start investing when you’re young, you can build a tremendous amount of wealth for when you’re older.
If you’d like to stop working at some point and don’t want to simply trust that social security will be there to support you and your family, investing in stocks can be a great way to save for retirement.
8) Invest in Stocks To Diversify Your Income Stream
Buying stocks allows you to diversify your income stream.
Let me explain.
The more ways you have to make money, the less you’re at risk from getting in financial trouble if any one method gets disrupted.
For example, let’s say you have a full-time job, rent out an extra room in your house to an international student, you also give tuition on the weekends, and invest in dividend stocks.
If any one of those sources of income were to dry up (for example, you lost your full-time job or you fell sick and could not give tuition), you wouldn’t totally lose your income. Because you have diversified your streams of income, the extra room rental and dividend stocks could help carry you through a rough patch.
It’s the same concept with investing. Owning stocks can diversify how you earn returns on your money.
Maybe you’ve got some money in your company’s retirement plan, or saved in a bank account, or invested in expensive watches or wine. Stocks can be another type of investment, diversifying against potential trouble in any one area.
9) Invest in Companies That You Love Or You Have Expert Knowledge In
When you buy even a single share of a company, you’re officially buying a business.
If you love Apple products, and you buy Apple (AAPL) stock, you’re actually an owner of the company.
In Singapore, each of us will definitely use one of the 3 banks, DBS, OCBC and UOB. We will definitely visit one of the shopping malls owned by Capitaland. By investing in these companies, one, we become part of the owner and two, we can get paid from these companies through dividends.
Some other examples include companies that we are very familiar with. We use Amazon to buy our things online, we use Google for almost everything like searching for information, email, maps etc. We also use Facebook for our social media and Facebook owns IG and WhatsApp.
All these companies are listed in the stock exchange and we can become investors of these companies. Isn’t that great?
Of course, I am not asking you to invest in them right now. There are some research that needs to be done, for example, valuation of the companies, market conditions etc and this brings me to the last reason...
10) You Will Learn A Lot From Investing In The Stock Market
Investing in stocks will teach you a ton of knowledge!
You’ll learn a lot about the stock market, and how companies work, what makes them succeed or fail, how products come to market, how economies impact companies, and much more. If you study economics in college, this is the time you can apply your knowledge!
Plus, you’ll learn to think in new ways. Investing in the stock market requires logic, analysis, and thoughtful reflection. Practicing these skills with investing is sure to sharpen them in other areas of your life as well.
“If you don’t find a way to make money while you sleep, you will work until you die.” Warren Buffett
Conclusion
Wrapping up, I shared 10 powerful reasons why you should invest in stocks!
In my opinion, investing in the stock market is about learning, having fun, and making money.
But there is much more than these.
Done right, investing in stocks allows you to use the money you already have to make more money with minimal effort.
Let’s say you saved $10,000. How long did it take to save that money? 6 months? 1 year or 2 years? Now what if you could invest that $10,000 in the stock market, do some occasional research and trading, and over the course of 10 years turn that $10,000 into $20,000.
However long it took you to save that $10,000, I’m guessing it was pretty hard work. You were probably trading your time for the money.
Investing allows you make your money work hard for you. Your first $10000 profits can be earned while you are doing other things.
It’s also what legendary investor Warren Buffet was thinking about when he said:
“If you don’t find a way to make money while you sleep, you will work until you die.”
And how fast your money can earn that next $10,000 depends on how good an investor you are. The better you are at buying stocks, the faster your money will grow.
Of course, along the way there will be risks, pitfalls, and challenges
One thing I have learned is that the stock market isn’t right for everyone.
It takes commitment, patience, smart decisions making, and steady work to make your money grow over time. Skip out on any of those things and you risk losing money in stocks.
But overall, if done right, investing in the stock market is one of the greatest ways to grow your wealth.
Let me know in the comment section below, have you started your stocks investment journey? Just type yes or no to let me know.