Reasons to invest in stocks

5 reasons you should be investing your money in the stock market.

Are you broke? Are you tired of your 9 – 5 job? Are you finding it difficult to provide basic necessities for yourself? Do you have your finances well planned out after retirement?

Investors are freedom fighters.  They fight for freedom from being pushed around by lack of funds.  From the painful and frustrating agony of being broke.

One easy way to break-out of this cage of being broke is through the stock market. Anyone can get started investing in the stock market.

Some people started investing in the stock market by mistake and some by condition.
It could be that after college, you got a job at a brokerage firm. It could be that someone owed you money and paid back by handing company’s shares over to you. It could be that you found yourself in the midst of a social discussion about stock investing. It could be that you were surfing the internet and stumbled on an article or an advertisement about stock investing.

As for me I got tired of being broke. So I read some books about finance and investing. The first helpful book I read was “Rich Dad Poor Dad” by Robert Kiyosaki. It is here I learnt that the rich don’t work for money rather money works for them.

What does this mean? It means that through stock investing you can create passive income for yourself.

Passive income is a portfolio/ asset that creates/produces cash flow for you for a long time as far you manage that asset properly.
An asset is something that can put money in your pocket. Example of assets are: Real estate, dividend stocks, bonds, copyrights, patents etc.

The second book I read about investing was “how I made $2 million in the stock market” by Nicolas Darvas.

Here I learnt you need to learn how the market works in order to keep on making profits in the stock market. A blind investment can proof to be very costly.

Here are reasons why you should invest in the stock market:

  • Passive income

Here the goal is to build a dividend portfolio through dividend growth investing. A dividend is a portion of a company’s profits distributed to its shareholders.  The remaining portion is reinvested back into the company operations or it is retained.

Dividends can be paid four times a year. That is on a quarterly basis. It can be paid two times a year or monthly or once annually. It depends on the company you invest in. Dividend is a way a company rewards its investors. To enjoy dividend income, it is advised you compound and buy a good dividend stock multiple times and grow your dividend portfolio..

  • Growth in the price of the stock

The primary reason of investing in the stock market is to grow your money. The S&P 500 returns an average of 10% annually.

If proper analysis is done on a stock, you can earn an average of about 7% – 10% yearly.  If you invest $5000 in the sock that returns 10% every year. Your money will increase to $5500. In 10 years, your investment will be worth $10000. In 20 years, it will be worth $15000. In 30 years, it will be worth $20000.

  • Harness the power of compounding

Compounding works like magic. Above I used an example, investing $5000 once, that returns 10% every year. A period of 20 years will earn you a return of $15000.

This kind of investing takes a longer time, 20 years for $15000 is not really interesting.  Imagine you buy the same stock every month with $5000 for 20 years. You will have a return of $3,470,137 with a total investment of $100,000.

  • Save for retirement

Of course, no one wants to retire to being broke. That will be a regret of “if I had known”.  Invest your money in the stock market so you can retire to income. The best time to invest is at a young age which will give you the time to compound enough wealth to enjoy at an older age.

  • Protect your money from loosing value

Money looses value over time because of inflation. The purchasing power of the money you have now will decrease. To counter this disadvantage, it best advised to invest your money wisely.

Let’s say you invest $10,000. If your stock investment return in 2 years is 17% and within that 2 years inflation rate is 4%. Your $10,000 will become $11,300. But if you didn’t invest your $10,000, it will lose its value by 4%. That is, a purchasing power of $9,600 instead of $10,000.

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