The stock market is at historic highs this year, despite COVID-19 and the tumultuous election season. Looking annually, when you invest in the stock market you can expect upwards of 5% in annual returns. Read on to find out why you should invest in the stock market and take advantage of this growth.
About 55% of all Americans invest in the stock market. On the other hand, only about 28% of Latinx folks are investors. Many members in our community are missing out on the massive growth that the stock market experienced last year and continues into this year.
In order to invest in the stock market, you will need to budget accordingly. While the more money you have in the market, the higher the returns will be, it is not necessary to start an account with all the extra cash you have on hand. Many people will lead you to believe that stock market investors look and act a certain way, and if we do not fit that mold, then we do not belong. Remember this: a stock market investor can look like you and me.
Here are five reasons why you should consider investing in the stock market:
1. Grow Your Income
Studies show that the historical rate of return when investing in the stock market is about 10%. This is before inflation has been accounted for. Important to note here is that this number is through passive growth, meaning no active trading. Investing “the lazy way” through index funds or ETFs that track the market, for example, will still get you close to that average.
Cutting expenses and creating more room in your budget will certainly help you achieve financial goals. Investing in the stock market, however, accelerates achieving longer term goals. The capital gains and dividends made from your portfolio are, essentially, another source of income that keeps growing.
2. Compound Interest
This is the key process that allows you to grow your money. In short, compound interest is the interest that is calculated on the initial principal of the loan or deposit. In other words, it is the interest you earn on interest. Nothing beats this. Not high APYs, not low APRs, not even cutting your budget. The earlier you start, the more your investment vehicles will have time to experience the powers of the stock market.
3. Reduce Taxable Income
One of the most common financial planning concerns for people is around taxes. When you invest in the stock market, you can address this concern. For example, contributing to a traditional 401K will reduce your overall taxable income. The benefits of reducing your taxable income include, lowering your tax bracket and qualifying for certain credits.
4. Save for Retirement
It is said that the average American will spend close to $1 Million over the course of their retirement. Social security, which many people rely on for retirement, will cover only a small portion of that. When we invest in the stock market, we are creating a sustainable future for future us, one where we will not have to rely on others or the government for our survival.
5. Generational Wealth
Nothing else will grow your money in the way that time in the stock market will. As first generation individuals or women of color, we were not afforded the same safety nets and access to networks that our peers were offered. This means that it might take us a little longer to reach that six-figure salary (if at all), we might be carrying debt, or we’re responsible for the wellbeing of family. Each of these, in one way or another, can delay a wealth-building journey. This is remedied when you invest in the stock market for the long term because we have annual returns and compound interest working on our side.
Beyond the financial stability you will be creating for you and maybe even your family, you are also setting an example. As a first-gen, chances are you’re probably the first in your family to invest in the stock market. By presenting this reality to younger generations, you will be encouraging them to start their journey sooner. Investing in the stock market won’t be such a radical concept for them.
Investing in the stock market can be scary. That’s exactly how the Wall Street bros want you to feel. Investing in the stock market, however, is actually one of the best things you can do for your future.
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