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Stock market investing intimidates many people because there’s a mistaken impression that it’s for rich people or those with higher education. The truth is, stock market investing is for everybody, no matter your salary, background, or education.
To help you decide whether stock investing is right for you, we compiled a list of its pros and cons to help you determine if it’s a good fit for you.
Investing in the stock market takes very little time and, historically, produces a steady 10% average return for investors. Low-risk investment strategies such as index funds and ETFs can be an excellent way to beat inflation and create passive income for the future on nearly any budget.
Like any investment, the stock market comes with benefits, drawbacks, and risks. Find why some people love stock investing while others avoid it, in our Pros and Cons list below.
Is Stock Market Investing Worth It – The Pros
Stocks are a go-to investment choice for people from all backgrounds and income levels. Stock investing is unique because it provides a steady path to passive earnings over time without requiring much time, research, or risk.
1. Historically, Average Stock Market Returns Produce Steady Profits Over Time
The average return on stock market investments over the past hundred years is 10%, however, the past 10 years (not including 2022) produced higher returns — an average of 13.95%.
Many people hold on to the old-fashioned idea that they should save their money in a bank account, such as a savings or money market account, or into CDs, however, bank accounts produce less than 1% returns annually, compared to stock investments, which have a proven historical annual average of 10%.
Stock market average returns are based on the S&P 500 index, so if you choose riskier investments, you may not enjoy such profitable returns.
For example, less than 2% of day traders make any money at all in an average year, and people who invest in individual shares of companies instead of diversified funds such as the S&P can lose their entire investment if a company fails.
To aim for achieving a steady 10% or better average, consider investing in diversified assets such as index funds, ETFs, or mutual funds. Then, you can learn more about the stock market over time if you want to pursue higher-than-average returns.
2. Stock Market Investing Can Help You Combat Inflation
The overall cost of living (inflation) rises an average of 3.24% per year. The returns from an average stock market portfolio produce 10% per year. In a typical year, the earnings from average stock investments beat the cost of inflation by 6.76%, leaving you with healthy profits.
Even during a year like 2022, with an unusually-high inflation rate of 8.5%, a traditional 10% stock market return (based on 50 years of the S&P 500) would beat inflation by 1.5%.
The good news is that stock returns have been higher than average (15.27%) over the past five years. So while long-term investors may temporarily earn less in 2022, their investments over time still put them ahead of inflation and on top of generating profits.
For the past five years, stock returns averaged 15.27%, which outweighed the long-term average inflation rate of 3.24% by a whopping 12.3%.
3. Compounding Can Create A “Snowball” Effect On Your Earnings
Compounding happens when you continually reinvest stock earnings back into your portfolio. Over time, those earnings begin to make their own profits, and those profits earn profits.
It sounds simple, but compounding really adds up.
For example, based on average returns, if you put $1,000 into the stock market for one year, then reinvest its 10% return of $100, the following year you’ll earn returns on $1,100 instead of $1,000. If you keep doing the same thing year after year, the compounding effect turns your $1,000 into $45,259.26 over forty years..
Most long-term investors allocate a portion of their monthly income toward investing, which increases the compounding effect.
For example, if you deposit $1,000 into a stock market portfolio today, then add an additional monthly contribution of $300 for the next 40 years, your investment turns into more than $1½ million (assuming you get the average 10% annual return).
4. You Can Build A Fortune With An Everyday Salary
People often think of the stock market as a “rich person” thing, but anyone can invest in stocks, on nearly any budget. It doesn’t take a lot of money to become a millionaire over time if you start investing when you’re young.
- Parking lot attendant Earl Crowley never earned more than $12 an hour in his lifetime, yet he built a $500,000 investment portfolio over 44 years.
- Gas station attendant/janitor Ronald Read built an $8 million fortune through smart spending and investing during his lifetime.
- Secretary Grace Groner turned a $180 investment into a $7 million fortune over the course of 75 years.
If stock investing sounds intimidating, you can begin with baby steps, investing only a few dollars each month while learning your way around.
You may also consider investment coaching, which can help guide you through the process of learning to invest so that you can make better decisions.
For example, Market Insiders provides coaching, including live Q & A sessions, for all types of investing. Find out how its program can jumpstart your investing by teaching you how to make good investing decisions from the start.
5. You Can Liquidate Investments At Any Time
In most cases, you can cash out and sell your stock investments at any time.
Most investors avoid liquidating because you can lose a lot of money and future earnings, however, some people are more comfortable knowing their investments can be turned into cash anytime.
6. You Can Start Investing With A Small Amount Of Money
You can get started investing in stocks for as little as $1, depending on which brokerage (platform/app) you use.
Did you know? 46% of millennials think they need $1,000 to start investing, and 17% think you need even more — $10,000 — to begin, according to a survey by Twine.
The fact is, you only need $1 to begin investing in the stock market if you find a broker with low minimum investment requirements.
- Myth: You need at least $1,000 to begin investing in the stock market.
- Reality: You only need $1 to begin investing in the stock market.
7. You Don't Need Experience To Start Investing
If you like to “learn as you go,” stock investing is a great solution. You can start by investing just a couple of dollars to gain “hands-on” experience.
Many investment platforms provide educational resources to help you learn the basics of stock investing, so you can learn more about the market as your money grows.
When you’re ready to learn more about how to think like an investor, consider Market Insiders — a Minority Mindset program that provides you with coaching on how to become a successful investor.
Market Insiders doesn’t tell you what to invest in or where to invest. Instead, it helps you learn how to think like a successful investor and make your own investment decisions in the future.
8. Stock Market Investors Enjoy A Large Pool Of Peers
56% of Americans own stocks, so you’ll have plenty of company when you invest in the market.
This means there are plenty of forums and groups you can join to help guide you along the way. You may even discover that many of your current friends and colleagues are already investing in the stock market.
9. Getting Started In Stock Market Investing Is Easy
Investing in today’s stock market is simple and easy, thanks to a wide selection of investing apps that present information and choices in a user-friendly format.
A 2022 Minority Mindset poll found that 79% of money-minded people use 1-3 investing apps. That’s no surprise since apps help make stock investments easy for everyone.
Most stock market investing apps provide:
- Easy-to-read pie charts and graphs that allow you to check your portfolio at a glance.
- Educational resources to help you learn more about the stock market.
- Auto-invest options so you can automatically transfer money to your portfolio when you get paid.
If you’re looking for an app to make stock market investing easier, we recommend M1 Finance.
M1 Finance lets you build a financial portfolio for free and maintain it automatically. Best of all, you can get started for as little as $1 (or $10 a month for auto-invest), if you want to start small and learn as you go.
10. Stock Market Investing Takes Very Little Time
Stock market investing, for long-term buy-and-hold investors, is a truly passive activity that requires very little (if any) time on your part.
For example, if you invest in real estate, it takes time to meet with and manage the team of people that will repair, renovate, rent, and oversee your properties.
With stock market investing, the bulk of your job happens early on when you determine a strategy, research the types of investments you’ll make, and get your portfolio and auto-payments set up.
Long-term investors typically put their money in indexes, ETFs, or mutual funds, which require very little research and setup, and almost no maintenance.
Cons Of Stock Market Investing
No investment is risk-proof or fool-proof, and stock market investing is no exception.
Stock investing requires the patience to allow your money to grow, the due diligence to understand the risk factors, and an understanding of how taxes work on your investment income.
- You must let your investment sit or you can lose a lot of money.
Long-term investing is an approach that historically produces steady, profitable returns on stocks.
This means that you’ll let your investment sit still and resist the temptation to sell, even during economically turbulent times. Doing so often requires sticking to your plan despite the urge to sell during recessions and other economically volatile times.
“Though tempting, trying to time the market is a loser’s game. $10,000 continuously invested in the market over the past 20 years grew to more than $48,000.
If you missed just the best 30 days, your investment was reduced to $9,900.” – Christopher Davis, DavisFunds, Financial Analyst & Director of Coca-Cola
Long-term investors know that the market has always balances itself out over time, and are dedicated to leaving their investment in the market through all its ups and downs.
- All investment carries risk, and the stock market is no exception.
There’s no guarantee that any investment you make will earn money, or that average stock returns will remain at 10%.
Like any investment, the stock market carries risk. Buying individual shares or day trading, for example, are risky stock market investments, because in the short-term, the stock market is very volatile.
Buying into index funds, ETFs, or mutual funds are lower-risk ways of investing, but they are not risk-free.
Before you invest, do enough research to understand how much risk you're taking with the investment strategy you plan to pursue.
- Yes, There Are Taxes.
Stock market investing doesn’t provide you with the type of tax breaks that you would get from real estate investing. Additionally, 401K and IRA tax structures could set you up for very high tax rates in the future.
Within your first year of investing, you’ll want to research the tax laws and consult your tax person or tax attorney to help you fully understand how much you’ll pay in taxes related to your stock market investments.
Is Stock Market Investing Worth It – The Verdict
We think long-term stock market investing is worth it, and recommend it to all our readers.
Investing in the stock market requires very little time, typically produces healthy returns, and helps you beat the rising costs of inflation. It also lets you enjoy “compounding,” which can turn small contributions into millions of dollars throughout your lifetime.
All investment carries risk, and the stock market is no exception. Understanding your risk, how taxes work, and how to develop a stock investment strategy will help lower your risk and potential losses over time.
Stock market investing has proven itself as a solid way to beat inflation and generate retirement income over time. It can be an excellent investment choice for people from a wide variety of backgrounds, education, and income levels.