NASDAQ, S&P 500, DOW Jones…what does it all mean? The stock market can be overwhelming for beginners but it’s an effective tool to make money. I read an interesting article this week from the U.S. News about reasons to get into the market, and it helped crystallize a couple of really good points about investing.
According to Sam Seiden, chief education officer at Online Trading Academy, the stock market is one of the biggest wealth creators in history. Here are 3 reasons to start investing in the market and claiming your own piece of the pie:
- The stock market fluctuates, but will go up over time. Due to 401(k) programs and other retirement plans, there are huge direct investments into the stock market each month that usually force prices higher, Seiden says. “When a company in the S&P 500, Nasdaq, or Dow Jones industrial average doesn’t perform well, the exchange simply removes it and replaces it with a better one, helping prop up prices,” Seiden says. He also says it is in Wall Street’s best interest to have stock market prices move higher because many of the firms own much of the stock themselves.
- You don’t necessarily need to pick a “killer” stock. Investing can be done on a micro-level with individual stocks or on a macroeconomic level by purchasing a basket of indexes that map back to the Standard and Poor’s 500 index or other global benchmarks. “You can invest in mutual funds but those come with higher fees,” Seiden says. “You can invest in individual stocks, which will tend to have the biggest market moves, or ETFs. You can also invest in options on the stock market, which offers lower capital investing and more customized strategies.” Start by creating goals and deciding what strategy you will use to achieve them.
- Compound interest is still the most powerful force in the universe. Starting early and saving often is always better. For example, if an investor begins investing $3,600 per year at age 25 for 15 years at an 8 percent interest rate and then stops, she will have earned $1,050,000 by age 70. If another investor begins investing $3,600 per year at age 40 and does it for 30 years at an 8 percent interest rate, she will only have earned $450,000.
Try to think of investing in the stock market as your long-term strategy that takes time and patience. You’re not going to become rich overnight but can slowly build wealth as you build a portfolio of stocks over time.
What’s stopping you from jumping into the stock market? Let me know in the comments below.