I read a stat from Gallup Poll recently that only 54% of Americans have money invested in the stock market and
that’s down from 62% in 2009. Maybe the reason for the downward percentage in the stock was from the 2008 financial crisis in which it was a bear market during that period and people in the U.S. were scared to invest and have their money disappear from the down market.
But that was close to ten years ago and today stocks are at an all-time high and we are living bullish for a while now. So much so that the financial bubble may burst at any moment and experience another bear market. That not a reason, however, that we should not put money in the stock market. Stocks are always go through cycles but for the most part it’s mainly in an upward cycle. Periods of downward trends like in 2008 during the housing market bubble explosion and the dot.com bubble bursting in the early 2000s were recent bear markets. But these cycles last around a two year period. Right now we are experiencing a seven year period in which the market has been as bullish as it’s ever been. If you were a smart investor, you would have put money in market during the 2008 crash because you knew it would go up at some point. And here we are experiencing this upward trend today and those who started investing or hung on during that rough period are reaping the rewards today.
Here are reasons you should invest now and not later:
Investing in the stock market is not the biggest risk
For those that are not invested in the market, you know that you run the risk of outliving your savings account and missing out on potential wealth growth. That’s already a risk you’re taking if you are relying on savings where interest rates are low or in very safe investments like CDs. This is where diversification can come into play. Investing in a combination of safe and riskier investments will prevent your account to completely crash when the market becomes bear.
This is bit of extension from my first reason. You can control your risk tolerance by mixing in the type of investments you feel that will help you build your wealth
. You can throw in some high risk investments that may give you a high return and low risk investments and gives you a low return
. Whatever mix of investments you feel comfortable with, always know that you can offset those huge losses from your riskier investments by your less risky investments
. Bonds are good examples of low risk investments. Not all bonds are all low risk but know that for the most part, you will not lose much from investing in bonds.
What I have in my asset allocation is based on how old I am. To figure out how much you invest in stocks and bonds is to deduct your age from 100. For example, a 25 year old investor would have in his or her allocation, 25% bonds and 75% stocks. So I’m in my late 30s, so I would have about 35-40% of my allocation in bonds and the rest in stocks. The younger you are, the more risk you can take and the older you get the less risk you take.
It make sense because when you’re in your 20s, you have more time to be in the stock market than someone who is in their 50s. You would have that benefit of taking more a risk and potentially generating huge capital gains and dividends. And if you lose out in the market, you still have time to gain it back because of how young you are. This is why you should invest as early as you can.
For the older investors in their 50s, they can’t take that risk of putting a high percentage in stocks because they can potentially lose a lot of their hard earned money right before their retirement age and may have to be in the workforce longer than expected. Putting about half or even more of their investments in bonds is much safer for them because they know that for the most part, the bonds will pay them back after maturity.
Ahh yes, those magic words. Building interest on top of interest, maybe
the most powerful force in investing. This secret weapon for investors can help you with all your investment accounts including your retirement account(s)
If you invest in a small amount, say $100 a year for 20 years with an interest rate of 7%, you will earn about $4500. That’s about more than double the amount you invested throughout the duration of those 20 years ($2K total invested)
A better example is if you invested $5000 a year for 15 years at an 8% rate then after that 15th year is up you leave it alone for another 20 years. You would earn around $1,098,510.
You have Different Ways to Invest
You don’t have to rely on individual stocks in your investment portfolio and worry about how it performs on a weekly or even daily basis. You can put your money on index funds that will build for the long run. It’s a macro approach in which you can check on it once a month or every few months and it’s a simpler approach to investing. Index funds are basically a collection of stocks that computers manage in an effort to match the current market status. And they can be found in a form of international funds, real-estate funds and in the S&P 500. They are extremely low cost and easy to maintain.
Whether you’re invested in retirement accounts, brokerage accounts, or a combination of both you are already headed in the right direction. It’s even better that you start investing in the stock market when you’re in your 20s so you have more time to build up that compound interest.
Any other reasons you invest in the stock market? Feel free to comment below!