Investment is an excellent alternative to increasing your wealth. Stock market trading offers real opportunities to improve your financial value in the short, medium, or long term. There is a variety of reasons to invest in the stock market.
We write a lot about investing in stocks, look at returns, growth, and profitability, and tell you about companies whose stocks you should or should not buy, which assets to look at and which ones to move away from.
Nevertheless, we did not mention the most important and initial reasons for investing money in stocks, but now we have decided to correct ourselves and still talk about it. So why should you invest in stocks?
Protecting money from inflation
When you invest in stocks, you protect your funds from inflation. If we are talking about normal countries, with normal economic indicators and the stock market, in particular the US stock market, then historically, the return on stocks has always been ahead of the inflation rate.
Securities do not just protect money, preventing it from becoming cheaper (like bank deposits); they allow you to significantly overtake the rise in the price level and earn more.
If we look at the average annual return of the US stock market over a hundred years, we find that it is 6%. In turn, the average inflation in the US is 1.79% (for ten years).
The situation in the Russian stock market is much less rosy because the average yield on the MICEX index is 2.5-3% (per year for ten years), and the inflation rate is 7.5% over the same period. Here, as you can see for yourself, the growth of stocks lags the growth of inflation. That’s the nature of it, unfortunately. And yet this is one of the most important reasons you should invest in stocks and in general.
Motivation to act economically wisely
Many people lack the motivation to save and save money. Instead, they are motivated to spend money and indulge in unnecessary things. But, when you have an investment plan and strategy, and you are investing money, you know how much you want to save and what benefits you may expect. The emergence of motivation to be financially literate is very important.
The Growing source of passive income
It’s about dividends. They tend to grow and grow over time. Yes, the dividend stream will be small initially, but the longer you invest, the larger it will become. It means you will have a stable source of passive income every quarter that will not require any complex and everyday work from you.
Currency hedging
Or, more simply, protection against the depreciation of the ruble. If, for example, you live in Russia and earn in rubles, own real estate in rubles, and work in Russia, then you have already invested a lot of money in the country’s ruble-denominated economy. Therefore, when investing in US stocks in dollars, you protect yourself. You invest in foreign currency and earn in rubles; you already own at least two currencies. It reduces the risks in adverse economic circumstances.
High income
Stocks have historically generated the highest returns of all financial instruments. Stocks consistently outperform bonds and precious metals, even as gold, which the preachers of crises, apocalypses, and so on love to talk about. Of course, stocks are a riskier tool, but the profit they can bring is a significant answer to the question – why do you need to invest in these assets.
After you have developed a strategy yourself or with the help of a consultant, you can spend no more than one and two hours per month on your portfolio. Sometimes this is a lot if you do not replenish it often. Just one reinvestment of dividends once a quarter is enough, and that’s it.
Moreover, the less often you look at quotes and pay attention to volatility, the calmer you are. This approach protects your nerves and keeps you from making unjustified and impulsive decisions that the stock market does not accept.
You will be surprised, but if you read the analytics, you will see that even many experts express their assumptions about the stock movement based on their emotions. Therefore, initially, we should all trust the numbers and not build forecasts on a whim.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
