Why the Stock Market Is a Chance Worth Taking
According to Bankrate.com, Americans invest most of their money into real estate. That makes sense. Real estate can be a good investment. But where do Americans put their money that isn’t invested in real estate? The stock market? No, unfortunately. The majority of Americans keep their excess wealth… in cash.
If that doesn’t depress you – it should.
The problem with cash is it loses value every single day. With inflation hovering around 3-4%, your cash becomes less and less overtime. It’s basically impossible to find a savings account, checking account, money market account, or certificate of deposit that will pay enough interest to fight back against inflation.
What Americans should be doing is investing in the stock market. But according to Bankrate.com, more than half of Americans avoid the stock market altogether.
The stock market wins over cash nearly every single year. Historically, the S&P 500 has gained nearly 12% annually. This is why people like Dave Ramsey use that figure. Does 12% sound better than the measily 1% your bank account gets you? It should.
Getting Started with Investments
Investing can be scary – especially if you watch the news. There’s a lot of negative thoughts surrounding investing. But in reality, it’s how many people get wealthy. It’s hardly worth being pessimistic about. You should be overjoyed! The following are the 4 steps needed to begin investing. None of them steps are too difficult. But feel free to comment below with questions. I’ll answer them.
1. Determine Your Current Net Worth
How wealthy are you? Count everything that has a dollar assigned to it – house, car, existing investments, savings accounts, everything. It’s important to know your entire financial picture before investing. Reason being, it wouldn’t make much sense to start investing if all you have is high-interest credit card debt. You’ll want to tackle high-interest debt before investing anything.
2. How much money can be invested?
For maximum ROI, you’ll want to invest all your spare money outside of your emergency fund. Create a budget and determine how much money that is exactly. You also want to make sure you don’t invest money that you’ll soon need to buy a new car or fund an out-of-state move. Investing is a long-term financial decision.
3. Where should the money be invested?
There’s a lot to consider in this step. First, does your employer have any investment options? 401(k)’s with company match are fantastic. Contribute up to the match! Beyond that, open a Roth IRA and start contributing there. Once that’s filled, you’ll want to open a taxable investment account. This is where the non tax-advantaged money will go. Some popular brokerage firms include Vanguard, Fidelity, and TD Ameritrade. Customer support is good at all three of those firms. They can answer any of your brokerage-specific questions.
4. Create a Habit
In order to get that 12% ROI like Dave Ramsey talks about, you’ll need to dollar-cost-average. This means you put money in at regular intervals. Many people will contribute, say, $150 every 2 weeks into their Roth IRA. What you want to do is set your investments to autopilot. The buy and sell, scream and yell mentality won’t get you anywhere fast. Let’s stick to the 12%.
The Stock Market Isn’t Scary
Day trading may be scary but true ‘buy and hold’ investing isn’t. Buying and holding spreads your risk out greatly. Instead of betting on one company, you’re really just betting that the stock market will grow year after year. That’s a pretty safe assumption.
The stock market is a chance worth taking. Just remember to spread risk, dollar-cost-average, and get on autopilot. It’s time you put your money to good use.
I’m a personal finance freelancer writer and website manager. Feel free to connect with me at firstquarterfinance.com.