Why Should You Invest in Stocks? | Stash Learn
Why Should You Invest in Stocks?
By: Team Stash
Published: Mar 12, 2020
• Updated: Aug 22, 2024
In this article:
Before you start investing, it’s fair to ask yourself an obvious question: Why invest?
People usually invest for two main reasons:
- To earn a return
- To keep ahead of inflation
Earning a return
Getting a return on your investments—or making money from your investments—is the primary motivation for most investors. It basically means that you’re putting your money into a vehicle in which it will grow.
For example, if you buy $50 in stocks, you’re hoping to see that money grow so that your stocks will be worth more than you initially purchased them for. While returns can be positive or negative (all investments involve risk), over the long run, markets and returns have tended to trend upwards:
Your investments actually earn you money in three different ways:
- An increase in share value—an increase in a company’s stock price
- Dividends—a portion, via a cash payout, of a company’s earnings to shareholders.
- Interest payments—a periodic interest payment on debt to bondholders.
Staying ahead of inflation
Aside from making money via a return, investing can help you stay ahead of inflation.
Inflation is the tendency of money to lose value over time. It refers to the rising cost of goods and services with time, and effectively, measures the rising cost of living.
If the inflation rate is currently 2%, for a simple example, and your portfolio had a return of 7%, your real return would be 5%.
For comparison, the average annual return for the S&P 500 index over the past 90 years has been slightly less than 10%. If you were to invest your money into a fund that tracks that index, your money would stay way ahead of the inflation rate.
Make investing a habit
How can you get in the habit of investing? With Stash, all you need is $5 and a disciplined approach. Here are some tips:
- Invest a little bit on a regular basis—Even small investments add up over time.
- Hold onto your investments—Buying and holding helped make Warren Buffett rich, and the strategy could work for you.
- Diversify your investments—Don’t put all of your eggs in one basket, in other words.
How to get started
If you want to start investing, you may want to consider setting some money aside for it as part of your budget. (If you haven’t made a budget yet, that should be your first step.)
The good news is that you can invest with Stash with any amount of money. Beginnings should consider making investing a habit. Regular investing is part of the Stash Way, which also includes investing for the long-term and diversifying your portfolio of investments.
Written by Team Stash
We want to turn money into a source of hope and opportunity. We teach people how to build good habits, save more and make it easy and affordable to get started investing. So far, we’ve helped over 6 million people create a more secure financial future with our expert advice and award winning investing app.