Tired of spending all you money on beer, food, and fun? Trying to figure out what you should be doing with it rather than paying for bottle service and long holidays in sunny places? Look no further than the stock market. Start investing.
Or, if you are on the other side of the above coin, like me, and are knuckling down at work, saving, paying down those credit cards (which you racked up so easily in those heady days of youth, making memories you wouldn’t trade), and looking at options to finally make your money work for you, look no further than the stock market. Start investing.
The stock market is the way most of us can get rich. If you don’t have a billion dollar idea, Daddy’s company to inherit, or a big lawsuit win for putting a drill somewhere it shouldn’t be put, then you are going to have to rely on good old fashioned hard-work, and investing in the stock market.
It is not as hard as it sounds and it can change your life with a little bit of work, and quite a bit of patience.
Here are 5 reasons to start investing ASAP.
Everything comes with a risk: There is a risk when investing in the stock market; you might lose money. However, there is also risk to just saving your money; you could end up outliving your savings, or if you only invest in very safe options, you may end up losing your spending power to inflation (which tends to rise at a market average of 3% per year). However, a good mix of risky and safe investments will create a portfolio capable of weathering most adverse changes in the market and should keep your money safe from inflation, if not actually increasing.
The Number of stocks and bonds are endless (nearly): There are a huge number of companies you can invest in. They range from small companies trying to make a big splash to colossal corporations like Walmart or Visa. Smaller companies are a bigger risk but have more room to grow; as such, they can provide a bigger payouts if they make it, or a rapid loss if they don’t. With the business giants the opposite is true, growth will be slow but steady, making them a pretty sure bet no matter what the market conditions.
The key is to realistically set the level of risk you can weather, and the level of returns you want to get. There is no way you can make huge return in the short term and not open yourself to large risks. Ensure you get a portfolio that is right for your needs. This can be easily done by using a Robo-Investors like Wealthfront or Betterment reviewed here (neither of which I have an affiliation with). They ask you some simple questions and suggest a portfolio that suits your needs.
Good planning reduces your risk: As touched on above, correct asset allocation (choosing the right stocks and bonds to suit your needs) can reduce your risks immensely. Choosing the right mix for you makes all the difference. All stocks are not the same risk and all bonds do not have the same level of safety. This also provides some level of control over the returns. There are ways to avoid big losses, even in a crash like the one in 2008.
There are several ways to choose your asset allocation and start investing you can do the research yourself, pay an adviser, or simply let a faceless computer do it. No matter which way you choose, there is a risk; however, everyone involved is in it to make money and the more money they make for you the more money they make for themselves. The faceless computer gets my vote so I can avoid the Bernie Madoff’s of the world – let the algorithms do the work.
Trying to time your buy in: Trying to time the market catches everyone eventually. There are ways of measuring it, like using the critically adjusted price-earnings ratio CAPE. The CAPE takes the S&P composite index and divides it by a 10 year average of earning (adjusted for inflation). The theory goes the lower the number, the better time it is to invest. It is currently running at 25.72, which is pretty high and might be fueling the market speculation of a crash. However, it can run like this for years, and during that time you will be missing big gains if you don’t get involved. It is better to go in now with a well-calculated asset allocation than to finally get bored of waiting and go in unplanned right before the slow down. Setting up a monthly investment, perhaps through your company plan if matching is available, is a great way to get started.
The market is only kinda rigged: As a small fry in the world of investment, you can start to get the feeling you are being left behind or used as cannon fodder by the big investment companies. They have all sorts of tech and years of know-how, and can invest enough to push their own interests forward. However, there is another way to look at this, especially if you set up a monthly deposit, as most of us working Joes will.
With a monthly deposit, every time the market takes a knock due to scandal or investor fears, the price of shares drop. Admittedly, during this drop your existing portfolio takes a dip, but as you are adding to it on a regular basis, you also benefit from buying stocks in these dips, when they are cheap, and watching them bounce back when you have more in your pocket.
To sum up
In short, the markets are volatile and there are risks, but these can be mitigated to a great extent and you stand to lose a lot more than you gain by not taking the opportunity to to start investing and earn money from the success of others. Start investing and leave the others from dust.