5 Reasons to Start Investing in Stocks Now

With the volatility in the stock market of the past year, the potential of the coronavirus getting worst, and the valuations of stocks at historically high levels, it isn't too surprising that many people are wary of investing in stocks.

It's true that stock investing comes with some risk. However, it doesn't have to mean that you should avoid stocks altogether. Here are 3 reasons to find the money to invest in stocks:

1. Build Wealth Over Time

One of the realities of life is that putting money in a high-yield savings account or a high-yield CD just isn't going to cut it if you want to more effectively build wealth over time. This is especially true in a low-yield environment like what we've got right now. With rates as low as 0.50% in even so-called high yield savings accounts, the return won’t even keep up with inflation. Never mind being able to build wealth over time, your money is going to lose purchasing power over time unless you risk some of the assets you’ve accumulated.

Investing in stocks gives you the chance to earn higher than inflation returns, and that puts the magic of compound interest to work on your behalf. When you know how growing your money works, and you can put that knowledge to work, you can build wealth more effectively over the long term. Stocks are among the best ways to do that.

2. The Stock Market Has Yet to Lose in the Long Run

Even though volatility is a problem in the short-term, and there are historically big crashes on occasion, stock market valuations always came back and hit new highs. If you plan out your long-term financial goals, you'll find that investing gives you the best chance of reaching them.

One year periods have seen some really big up years and down years. If you stretch it out over five year periods, then the up and downs are less drastically. Stretch it out even more and you’ll see that the trend line smooths out, and doesn't look so scary. In fact, over long periods of time - 25 to 30 years - the stock market has always seen net gains.

Even those who’ve invested at the height of the dot-com bubble is up if they just kept investing. The S&P 500 has an annualized return of over 6% a year from January 2000 to December 2020. Imagine what you would’ve missed out on if you’ve sold after the bubble popped and your portfolio had already lost value. That’s why one of the biggest investing mistakes is to panic at short-term volatility, selling when every media outlet is telling you that the world is ending. In fact, buying when everyone is panicking has been a great time to buy at bargain prices historically. Take a step back and really consider the big picture and the long-term. You might be surprised at what you find if you just look at the data.

3. Stock Investing is as Easy as Ever

The real hang up for many people is trying to pick the right stocks to invest in. They worry about whether or not they are choosing the right stocks, and get concerned about seemingly-complex concepts like P/E ratios and reading balance sheets.

While these are things that can be learned, stock investing doesn't have to be complex, especially for those starting out.

Simple investments, like index funds, can help you avoid the pitfalls of stock picking. With index funds, you can start investing fairly easily, with little expertise, and with a small amount of money. An index fund, which follows a group of investments (you can even pick an all-market fund and track the entire market's performance), allows you to avoid the need for stock picking. These types of investments have made the whole process less complex for large groups of people, allowing them to focus on other activities, whether it’s to make more money or simply to enjoy their time.

4. It’s Been Cheaper Than Ever to Invest

Not only are commissions for every investment transaction almost free, but competition has also made investing in index funds extremely cheap. The Vanguard Vanguard S&P 500 ETF (symbol: VOO), for example, has an expense ratio of 0.03%. That means that for every $10,000 you invest in it, you are only paying $3 for administrative fees. In fact, Vanguard lends its securities and makes money off of that, and that return gets rolled into the fund. If you count that income, then you can argue that the expense ratio is actually negative. In other words, you are paid to invest in the fund instead of trying to juggle holding 500 stocks and rebalancing yourself!

5. Stocks are Accessible

We already talked about how inexpensive it is to buy and sell stocks. That’s why you can start no matter how much money you have. In the old days, just commissions alone to make one trade will cost you more than $50. Now, you can start investing even if you just have $5, $10 dollars to invest. Some major brokerage houses even let you invest fractional shares in your favorite stocks, so you are no longer required to buy a minimum of one share even if you just want to buy individual stocks.

You can also invest in stocks whether it’s a 401k, 529 plan, taxable account, or an IRA. No matter what the investment vehicle, it’s safe to say that you can invest in stocks with it. There’s really no excuse not to invest these days.

Bottom Line

You really don’t have to go all-in if you are unsure. You can start with a small amount of money, and consistently add to your nest egg. Indeed, when it comes to investing success, consistency is key. Never mind that the stock market’s long term trend is up and to the right. Even if you end up losing money, you are still better off investing if it means that you aren’t spending that money on something forgettable after a while. I mean, even a 90% loss means you are left with 10%. If you spend it? It’s a 100% loss as far as your wealth is concerned.

If you want to build wealth, then create a plan, and look for funds that you understand. Successful stock picking only works for a tiny fraction of those who try, so I highly discourage it. Still, you might want to dabble in the art once you learn the basics of investing. But to start, it doesn't need to be complex. And if you keep at it, your consistency will result in true wealth over time.