Investing in Stocks for Extra Cash in the Long Run
While it may seem like common wisdom to actually invest in stocks or even to invest in general, there are some very specific reasons why anyone (everyone) should invest in the present. The long story short is that there is truly no better proven strategy to guarantee success and returns in the long run, but some of the top reasons are as follows:
The idea of buying a single company means you are bearing all of the risk. However, by seeking out and discovering the best companies and owning shares in each of them, you can spread your risk over many different investments. Diversified portfoliotheory is not just a fun trick, it’s a strategy that actually works over time.
The simplest idea of thinking about compounding interest is thinking that all of your dollars are little workers. As they continue to “work” for you, you earn more dollars. But if you choose to take those newly earned dollars and put them to work for you as well, you are increasing the rate at which you can earn even more dollars.Reinvesting your earnings and dividends is one of the biggest keys to why big time investors can generate massive amounts of wealth so quickly.
Minimized Lifestyle Spending
While this one is a little more of a behavioral aspect of finance, it is not any less true than the others. If you make a given amount of money, but you are used to saving a certain percent, then you are only in the habit of living off of the remainder. In other words, if you save 10% of your income and only live off of 90%, then when you actually want to retire you only need to produce 90% of the income you are currently making! It might seem like a small point, but saving now conditions you to live more comfortably off of less in the long run.
What are the alternatives to investing in stocks?
-Mattress? Besides having no interest, it is susceptible to theft, fire, and every other problem under the sun. Not to mention it is hard to keep track of, and it might even take on a certain smell over time.
-Bonds? While they are more secure, the interest rates on bonds are negligible and you shouldn’t have a significant amount tucked away in these other than for diversification purposes.
-Real Estate? While this is a boom or bust field, the housing market crash of the last decade shows exactly what a “bust” period can do to housing prices. You don’t want to be on the hook for a significant mortgage when market values are only half of that mortgage.
-Casino / Lottery Tickets? This one may seem more fun, but is extremely more risky. In fact, it’s technically not a strategy but some people seem to live by it unfortunately.
As you can see, there are more reasons why you would want to invest in stocks for the long run other than just amassing wealth. If you want to be able to retire and live comfortably at some point in the future, then the effort you put in today will (literally) pay dividends. Just make sure you go the route that is the most proven and look for opportunities to invest in stocks today.