I’ve got some cash saved that I’d love to see grow. But what good is buying one or two shares? What good is investing in the stock market at all?
Great point. It seems a little boring to buy just a few shares, right? Sure, but look at it like starting a collection of the companies you love. If you don’t have any great passion for certain companies, you can also just buy all of them at once. People call that an “index fund” or “ETF (exchange-traded fund)”. Basically you just buy one piece that represents the blended aggregate of the market and ride the big wave.
Either way, if you’ve got some dough you want to grow, get it out of your stagnant savings account and into the market.
The real motivation is in the numbers:
Now for the stock market: the S&P 500 is the broad index of the biggest 500 companies in the United States. It’s the standard benchmark for US stocks. It has had an annualized growth of 11% over the last 5 years through November 2019. So if you took the average stock market returns, projected forward, that money would double in 6.5 years. Of course no one knows the future, but average is looking pretty good.
So the big question is not how many shares, but whether you have some portion of your savings that you would want to grow by the time you need it in 5, 10, 15 years. If you have some cash stored away, better to take a share of some companies you believe in and grow with them, than wait for your savings account to double your money in 144 years (72 / 0.5% interest).
Just be careful that we’re talking about long-term growth. Stocks are very volatile in the near-term and swing in value dramatically – for better or worse.
For instance, Netflix’s stock has had a wild year:
But despite the volatility, it’s up big over the last 5 years:
Here’s another one. Look at Amazon versus the broad market index for the last year. A wild ride:
Now how about 5 years?
Amazon is up almost 500% (6x) in the last five years. If you had $300 to invest in 2014, that would be almost $1,800 right now. That’s a little better that your savings account right?
Also, we feel obliged to remind you that there are winners and losers. Macy’s stock is down 75% over the last year. That same $300 would be worth $75 now. Hopefully you didn’t feel passionately about the future of Macy’s 5 years ago.
Even if you did, you don’t need to be a stock picker to take part in the market!!!
Check out our very important post about the difference between understanding the stock market and predicting it.