You don’t need a lot of money to start investing in the stock market. When I first dabbled in the stock market in 1999, the cheapest broker at the time had a $2,000 minimum requirement and to execute a buy or sell order cost $20 each. Nowadays, there are multiple apps that allow you to invest in the market with just your spare change, commission-free trades, and a low minimum requirement. I use Acorns to invest my spare change, and Robinhood for trading stocks commission free.
The Most Important Reason to Invest in the Stock Market
When it comes down to it, there is only one reason to invest in the stock market: Compound Interest. In short, compound interest is money made from interest and then generating its own interest. Over time, the interest earned on investments will surpass actual contributions because of the power of compound interest.
To illustrate, let’s assume the annual rate of return is 10% (the S&P average over the last 50 years). Every month, you invest $100 so that your annual investment contribution is $1200. Lastly, assume that all investments are reinvested and no taxes are paid from this investment account. With the power of compound interest, you’ll see your investments grow exponentially!
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“The time to save for the future is now. Thanks to compounding interest, the earlier you start putting money away for the future, the more you will save.” Alexa Von Tobel
Invest in the stock market. If you don’t know which stocks will generate at least 10% annually, do what billionaire Jack Bogle does and buy the whole index! The sooner you start, the more time your investments will generate additional interest.
There is always the risk of the market going down and your investments losing money in any given year. There is also no guarantee that the market will make 10% annually in the next 50 years or so. However, if history is any indicator, the market is resilient. The risk of not participating in the market is far greater than investing in the market. Don’t be afraid to lose money in the market, but don’t invest your emergency fund money. Invest your money that you don’t need right away. Automatically set money aside, invest for the long term and reap the benefits of compounding interest!
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