Should You Invest in Stocks?

Sep 12, 2018

Millions of Americans are wondering what to do with their retirements. They have started to make more money and have steadier jobs over the past few years. Pensions have almost entirely disappeared from the American labor landscape. Also, companies and the federal government have continuously pushed the ability of IRAs and 401 (k)s to help individuals earn more money and save for retirement. This situation has workers to research the safest ways to build their retirement and eventually have enough money to live off of when they do retire. However, millions of Americans are pursuing courses that are too inherently safe. They need to look at a balanced, long-term approach to investing in stocks. Investing in the stock market is the only way these Americans will be able to retire with enough money to last them a lifetime.

The Five Questions

1. Why aren't CDs enough for retirement?

A: Rate of return is the most important reason for individuals to invest in stocks. Many people think that they can subsist on the rates of return secured by CDs and savings accounts. They know that these accounts are protected by the FDIC and that individuals will receive their money back no matter how unhealthy the bank they are investing in becomes. However, the Federal Reserve has continuously cut interest rates over the past decade and rates for savings have not increased with rates for other vehicles. As a result, low-return bank vehicles do not keep up with inflation. An account that does not keep up with inflation actually loses purchasing power as the years and decades go by.

2. What is the best way to invest in stocks?

A: This rate can be secured with the low-risk approach of buying an index fund. Index funds purchase a massive number of stocks and then sit on them for years at a time. These funds have negligible fees and can still secure between five and ten percent returns every year that the market goes up. Those kinds of returns are paired with dividends that are reinvested and lead to more funds. An investing approach like dollar cost averaging can result in a person making significantly more money due to the power of compound interest.

3. Why is investing in stocks a better option than investing in real estate?

A: Investment is much easier in the stock market than it is in other fields. A common alternative to stocks in the world of investment is real estate. But the process of investing in real estate takes time and is not liquid. An individual who wants to buy a house or apartment building cannot sell that investment for emergency cash quickly. Stocks are fundamentally different. They can be bought and sold at almost any time. While fees do exist for some transfers, those fees often only cost an individual a few dollars in total or per share. Transactions can be completed with the touch of a button.

4. What prevents me from losing all of my money in the stock market?

A: Many individuals think of fear and insecurity when they think of the stock market. They look back on time periods where stocks fell precipitously and devastated fortunes. The clearest example of this process was the 2008 Great Recession. There are also smaller examples of particular stocks losing a considerable amount of value. But the overall trend has always been positive. Stocks are a stable investment over time. The stock market rebounded from the Great Recession in a few years.

Over decades, the stock market has always gained a large amount for shareholders even considering the effects of severe recessions. Companies continue to make new products that people buy and the national economy continues to grow even with the occasional hiccup. Individuals can trust that a long-term approach will yield them positive returns in the stock market.

5. Can I become rich by investing in stocks?

A: The stock market can be used in many ways. Some individuals attempt to become rich by buying and selling stocks. They attempt to buy low, sell high, and pour their money into small-cap stocks that may rise precipitously and make them a fortune. However, all of these approaches have a high potential for catastrophic failure. For every individual who becomes rich selling stocks, there are thousands upon thousands of people who lose all of their money. Anyone wanting to invest their life savings in the stock market needs to view it as a safe, stable form of increasing their wealth and not as a lottery ticket.

Americans are understandably worried about their financial futures. This worry should not hold them back from taking on the risks associated with the stock market. It also should not push them to make unwise or ill-timed investments into the market. Rather, Americans need to make smart, sensible choices that fit a long-term strategy for investment. A competent strategy will ensure that individuals are able to keep as much as they can while also ensuring the returns that will keep up with inflation and allow them to live the retired lives they have always wanted.

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