You can achieve wealth creation in different ways, among which stock investing is a popular method. In general, the stock market provides lucrative income to savvy investors. But the market does not always give you high returns. There are brief periods in history where the prices have taken a heavy fall.
Regardless of the losses, investing in stocks remains one of the best money-making methods. Let us look into the benefits and reasons why you should invest in stocks.
Reason #1: Best Investment Returns
When compared with other investment instruments like gold, real estate, etc., stocks provide better profits. For instance, if you had invested in gold 50 years back and retained the investment until 2020, you would have received a 5,333% profit.
However, stocks show a better profit profile. While the gain is just 3,737% with stock investment, you need to consider factors like compounding that provide big money by reinvesting the dividends. You can gain nearly 68,430% by reinvesting the quarterly dividends.
Reason #2: Proven Performance
A glimpse into the stock market history will show that the prices have continued to increase over the years. Despite downsides such as pullbacks, poor performance, and big crashes, the market has sustained itself over time.
The rise in global economies proves this fact. For instance, the S&P index for the US stock market has provided an average annual return of around 10.5% from the time it started in 1957 until 2021.
Reason #3: Without Investing, The Value Of Money Depreciates
When you do not invest your hard-earned money in assets, like stocks, and let it sit in the bank, the value of the money depreciates. For instance, if you have a bank savings of $20,000 and you hold it for 30 years, it will not have the same value after 30 years.
Furthermore, if you can use it to buy a car now, in 30 years the money will not be sufficient to buy car parts. This is because of inflation. The value deprecation depends on the inflation rate. If the rate is in the range of 1% to 5%, your buying power decreased by 1% to 5%.
Reason #4: Get Consistent Returns
Stock investing can help in providing you with regular passive income. Dividend stocks can get you income up to 10% or more of the total of your annual investment. Make sure you split up the investment into different stocks that pay a total of 4%.
An investment of $400,000 can pay a dividend of 16,000 annually for a 4% dividend. If the value of the stocks increases, the dividends will be more.
Reason #5: Save For Your Retirement
Stock investing is a good choice when you want to have a considerable sum when you retire. Investing at a young age will help build a lump sum amount as you age. There are options like retirement accounts that do not attract taxes and regular deposits made from your income. Instead of relying on social security, stock investing can help you spend your retirement without worrying about money.
Reason #6: Stock Investing Is Easy
You can put your savings to work by investing them in different ways, such as:
- Real estate
- Mutual funds
- And many more
Stocks are easy to invest in due to the online feature. You can register with a broker online in a few clicks and buy stocks of your choice. Although you need to research the market before you invest, the process can be done from your home or office easily. When compared to buying a property or investing in a business, stocks provide a quick, efficient, and cheaper method.
Reason #7: Earn Tax-free Returns
Tax-free accounts are available, which you can use to avoid paying taxes on the money you invest. Without the taxes, you get to earn more money from the investments you make. To capitalize on the tax-free accounts, you need to invest in stocks, mutual funds, or ETFs.
Holding shares in a 401(k), IRA, or similar tax-advantaged account for tax-free gains. Conversion of a traditional IRA to a Roth IRA will make your withdrawals tax-free. The U.S. government provides this special benefit that helps you grow your investment over time. Further, holding an asset for more than a year will qualify for a reduced tax rate.
While it is true that profits from stock investing rely on market conditions, when you weigh the advantages over the risks, the benefits are more. Although the market condition plays an influencing role, the time spent by an investor in the market matters more. Market fluctuations are a regular occurrence, so when you invest money for the long term, there is a fewer chance of losing funds. Another factor to consider is to research the stocks well before you buy. The quality of the stock you buy matters the most than the quantity.