Why everyone should invest in the stock market
The stock market has been around for a very long time. The history of the stock market dates back to the 12-century in France.
The formal stock market started in Amsterdam in 1611 when stock exchange was established.
The worldwide market capitalization of the stock market which was around US$2.5 trillion in 1980 is now over US$68.65 trillion.
What is the stock market?
Just like any market place where people can buy and sell items. The stock market is a marketplace where individuals and institutions buy and sell shares of various companies that are listed on the stock market.
In plain English, the stock market provides opportunities for everyday people to own a piece of any publicly listed company.
For example, I use the service of Amazon to buy various household items. Amazon is a publicly listed company. I can buy a share of Amazon and become a shareowner with Amazon.
Perhaps, you have an iPhone which Apple makes, or you have a running shoe which comes from Nike factory. These companies are listed on the stock exchange. Why not buy some shares and own a piece of those companies?
Using shoes as an example, many people are extreme shoe addicts and will buy every new model. What I’m trying to say is that the money can be better spent investing as a share holder of that company.
Why is it important to invest in the stock market?
This is not a debate about the best type of investment. This is just an insight into the importance of having some money invested in the stock market. You don’t have to invest heavily or put all your money in the stock market. However, having some shares is a good way to diversify your investment.
Wealth building tool
The stock market is one of the most important wealth-building tools around. For hundreds of years, wealthy people have been using the stock market as one of their wealth building strategy.
The richest people in the world like Warren Buffet, Jeff Bezos and Bill Gate are not just rich in cash but are wealthy because of the value of their assets. Part of the assets that made them rich is stock and shares.
Everyday people like you and I do not really need to be a billionaire to leverage the stock market to build wealth. That is the great part.
Cash is a depreciating asset
The main reason why cash is a depreciating asset is inflation. Your cash will always reduce in value if you don’t invest it.
Inflation is part of the economic cycle and the government of civilized countries manage inflation well.
There is a good example I always use to illustrate how inflation makes your cash lose value.
Let’s say you just bought a microwave for your kitchen for $30. Think forward that the microwave will one day become faulty or pack up and you will need to replace it.
Save $30 at home as the cash you will use to buy another microwave when the one you’ve just bought pack up. After 3 years, the microwave becomes faulty and you want to replace it. The $30 you kept to buy a new microwave will possibly not be enough because you can almost guarantee the price of the microwave would have gone up. This means your $30 is now worth less today than it was when you kept it 3 years ago.
Instead of keeping your cash at home or saving it in bank. Invest it in the stock market. Saving in the bank is not a bad idea. The only problem with banks is that they will only offer you silly rates which isn’t really worth it.
Not a capital intensive investment
To start investing in the stock market does not require a lot of capital like other investment concepts.
Real estate comes to mind when talking about investments that require large capital.
You can start with as low as £5 or $5. My favourite way of investing in the stock market is to take a portion of my wages every month and put it in the stock market through my brokerage account.
You can automate your investment by setting up a standing order from your checking account. The amount you set to be deducted will be credited into your brokerage account on autopilot.
Depending on how much you can afford to invest each month, you can set the money to be debited from your salary account.
There are stockbrokers who do not charge any fees to either buy or sell shares. This makes investing in the stock market very easy and affordable to everyday people.
Stock market goes up over a long period
What makes up the stock market are the companies who produce valuable products and services we use on daily basis.
These companies work very hard to innovate and improve on product and services they produce. When you consider this fact with inflation, the price of products and services is bound to go up periodically.
If you invest in the stock market for a long time, you can be sure you will win. I am not a financial adviser and do not offer financial advise here. However, I have been investing in the stock market for a long time. I know that investing for a long time is the best way to approach stock market investing.
Investing is Biblical
I am a Christian and the Bible helped to form my life philosophy.
There is a popular parable in the Bible. I am referring to the parable of the talent.
The master told the last servant who buried his talent. The talent the Bible referred to can also be called money.
In Matthew 25:27, the master said
“Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest.”
As a Christian I believe investing is a good thing especially stock market investing.
Good inheritance for children
There is no investment without risk. You can get less money than you put in the stock market. However, if the investment is long term the chances of getting less than you invested is very slim.
If you have dividend stocks, you can earn dividends from time to time as income. For index funds investor, the interest you earn from your funds can be collected as income.
Something else that is great about the stock market is that it provides an opportunity to live inheritance for your children; if you have been blessed with them.
Again, I can go back to my Bible philosophy.
“A good man leaves an inheritance to his children’s children – Proverbs 13:22”.
When you invest in the stock market, you can also pass the knowledge to you children. You can teach your children about money.
How to start investing in stock market
Investing in the stock market used to take a lot of efforts before the internet age.
To buy a share of any publicly listed company. You need a stock broker.
Before the internet, to have access to a stock broker, you will have to visit their brick and mortar office to complete paper work.
The internet now makes it easy to open a brokerage account with stock brokers.
From your phone or any device with internet access, you can open an account with a stock broker and start investing in the stock market.
Please do your own research and due diligence before buying any share.
My favourite stock market investing strategy is the index fund. I prefer index funds because of its low risk and low fee.
Best stockbrokers in the UK
The best stock brokers in your region or country may vary as services are sometimes country/region specific.
I am a UK resident and the best brokers in the UK are:
- Trading 212 – commission and fee free
- Vanguard – Low cost index fund and ETF
- Hargreaves Lansdown
- AJ Bell
- Freetrade – commission and fee free
- DEGIRO – Low Costs
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