Should I Invest in Stocks?

The U.S. Stock Market is at an all-time high, and many are wondering how much longer this can be sustained.  People are asking themselves if it is still worth investing in stocks at this high.  The simple answer is: YES!

Below is a chart of the S&P 500, which covers the broad range of the stock market.  The chart below illustrates performance from 1950 until the end of last year.

Image result for s&p 500 chart
Should I Invest in Stocks?

As you can see based on the chart, there are rises and falls, some of which are quite big.  If you look at the chart as a whole, you can ultimately say that U.S. stocks have increased in value over time.  Here are three reasons why one should consider investing in stocks.

Should I Invest in Stocks? Reason 1:

U.S. stocks have outperformed almost every other investible asset over the past 100 years, especially government and corporate bonds.  People often think of bonds as a safer alternative to investing in stocks, but what they really mean by “safer” is less volatile.  Yes, stocks can fluctuate with higher highs and lower lows in a given period of time, but over the long-run they will outperform bonds.

Should I Invest in Stocks?  Reason 2:

Stocks are the easiest and safest way to build wealth.  What I mean by this is that continual investment in stocks will yield higher and higher returns over time if you let your returns compound.  Compounding interest is a great thing when it comes to building wealth and all it takes is two simple steps:

Step 1: Continued investment and reinvestment

Step 2: Time

By continually putting money into your stock investment on a consistent basis and allowing your returns to reinvest, after a period of time you will be able to build a substantial amount of wealth.  And again, since stocks outperform other investments over the long-term, you are compounding a greater percentage each year.

Should I Invest in Stocks?  Reason 3:

Because Warren Buffett says so!  At the time of this post, Buffett’s net worth is estimated to be in excess of $75 billion USD.  It has been said that he is the greatest investor the world has ever seen.  How did Warren and others like him make their great fortunes?  Through investments in stocks.  Warren has constantly invested in companies throughout his time via stock purchases in what he calls “value investments”, which is a simple way to say in companies he believes to be cheap in valuation.  Buffett has gone so far as to say that even upon his passing he would like the remainder of his fortune to be placed in a low-cost index fund that mirrors the S&P 500.  The greatest investor ever believed and still believes in the power of stocks.

Hopefully by now you have been convinced that investing in stocks is the right thing to do, but how do I get started?  Simple, to begin investing in stocks I would recommend investing in a mutual fund that covers a wide range of the U.S. Stock Market.  Investment firms such as Vanguard and Fidelity offer these sorts of funds that will allow you to get exposure to the broad range of the U.S. Stock Market and begin reaping the rewards.

Constant Investing

In case you missed it the DOW jumped 236 points yesterday.  The S&P was also up over 1% yesterday.  Before yesterday’s rebound the market had pulled back approximately 2.5%.

While these numbers might seem minuscule in the big picture of things, there is an important message to take from this.

The market moves every day.  Sometimes by a little, and sometimes by a lot.  If you take the emotion out of your investing the daily, weekly or even monthly moves of the market shouldn’t be an issue to your portfolio.

The Key…

Constant investing!

Every Friday I put a $100 deposit into my brokerage account.  Every month I put $500 into my Roth IRA.  By investing on a constant schedule I can ensure myself DCA (Dollar Cost Averaging).  By doing this, when the market goes up I am investing the same amount as I would when the market goes down.  The only difference is that when the market is down for the week or month, I buy more shares of the mutual fund.

By sticking to my investment plan and constantly investing, I have little care for how the market swings each day, week or month.  Timing the market is never a good idea.  Very few have the ability to beat the market.

My advice: Keep it simple.  Constantly invest the same amount each month into a mutual fund, stock, etc.  Allow compound interest to accrue.  Give it time.

Budget Smart, Invest Wise