This is the third post of the Not Another Boring Article About Investment series introducing you to Stock Market Investment. We designed this series to cover the basics of finance and introduce you in baby steps to the world of investing. If you missed the last post on how to create a budget and start saving money to invest, have a look here.
If you are new to investing or perhaps don’t even know what the stock market is, we are here to help. A good place to start is why you should consider investing your money in the first place. With time the value of product and services goes up, this is a given due to inflation. Inflation can be defined as the increase in prices and the fall in the purchasing value of money.
If you keep the same amount of money in your bank account and don't make any investments, over time it is losing value and your money does not go as far. To highlight this point think of a ten dollar bill and how many bottles of water you are able to purchase. This year you might be able to buy five bottles of water but with inflation, the next year you may only able to buy four. Therefore the purchasing value of your money has gone down.
The point of investing is to make sure your money is working for you and not just sitting there doing nothing. Of course, there are many types of investments from saving accounts to real estate or starting a business. There is a hope to create value and a return on these investments but there are no guarantees. The Stock Market, however, has a number of advantages over other investments.
If you have never invested in anything, the stock market has a really low level of entry. Even if you are a student with a very limited amount to invest, the Stock Market does not discriminate against you. You can still buy and make a return. And unlike real estate or a business, if you urgently need the money for some reason, stocks are liquid and you can quickly cash them in and get your money back.
People often want to know how much money they can make if they invest. There is a long track record of good returns on stocks and if you hold onto them for long enough, it is almost proven that you will see a return. A lot of people still have fear and associate stocks with the memory of the market crash of 2008, but if you hold out long enough, you will ride out a recession and still make a return.
To highlight the almost guarantee of return over time, people who are very old and bought stocks in the 30’s on the American Stock Market saw an average annual return of 9.7%. Obviously, it's hard to tell if it will continue at this rate, but there is a long track record of good return for long term investors.
Finally, a lesser cited reason for investing, which might sound a little cheesy is by investing in companies which you like and admire their mission, you are supporting their growth and potentially making society a better place. Similarly, if a company is reported as having bad business practices, for example, treating employees unfairly or operating suspiciously, dropping their shares can have a direct impact on their business operations.
So there you have it: solid reasons to consider Stock Market investment. Even if you don’t have a lot to invest, you can start with a small amount of money and your patience will pay off. In the next post, we are going to delve a bit more into how the Stock Market works and the different types of stocks available to you.