Why Should I Invest in Stock?

[This article is Part I of a series about the semi-passive strategy to outperform the stock market.]

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Your money should be making you money while you sleep.

The above mantra can change the way you live – now, and in retirement. Money has potential, and that potential shouldn’t be left sitting in a bank account with a low interest rate (or, worse yet, your money shouldn’t be squandered on inefficient spending). Instead, the money should be invested.

There are multiple types of investments: bonds, real estate, CDs, stock, etc. But which investment type is best? Well, if you’re looking for the investment with the highest yield over time, the answer is definitive. The stock market is the best investment type.

We could spend a whole article proving that the stock market yields the highest return over time, or you could just read what Investopedia already wrote here. 

Now, while the stock market tends to increase in value over the long run, that doesn’t mean that there are never bad years, because there are often years where the market loses value. But it has always come back up.

Consider the S&P 500, the most commonly used index of the stock market. The index is a list of 500 large companies (85% of all US stock) that investors look at to get a sense of how well the stock market is performing.

The index was created 96 years ago, so it’s been around a while! Since its inception, the index has increased in value an average of 9% per year after inflation (and after reinvesting dividends). 96 years is a lot of history saying that stock tends to increase in value over time.

While the S&P 500 “only” grew 9% per year over its lifetime, it’s been growing faster in recent years – over the last 10 years (including 2022 and its bear market), the market grew at a rate of 11% per year after inflation.

What does this 11% annual rate of growth mean? It means that in recent years the stock market has been doubling at the rate of once every 7 years. And multiplying something by two perpetually constitutes exponential growth. You don’t need to have learned much in math to know that exponential growth is a good thing.

You may be thinking, “Okay, so an individual company is liable to lose value over time, but history has shown that the stock market as a whole gains money over time. Therefore, the stock market as a whole might be the safer bet. I wonder if it’s easy to invest in the stock market as a whole.”

You’re smart for asking. And, in fact, it is easy to invest in the stock market as a whole. This is 2023, where commissions on stock trades are a thing of the past, and so are the difficult processes that used to accompany such a task. Nowadays, it’s about as easy to invest in the stock market as a whole as it is to buy something on Amazon.

Here’s my article about how to invest in the stock market as a whole.