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Why Everyone Should Invest

Updated: Dec 27, 2021

1. You can grow your money.

This is the reason why people invest money in stocks. If done right, you can grow your money 7%-10% annually over the long term. It's not hard to do!

If you invest $10.000 in the stock market today and it gains 10% per year, you will turn that $10.000 to $25.937 in just 10 years. Think about that. You can more than double your money in just 10 years without doing any work, just by investing it in high-quality productive companies and holding them.

Below is an example of how $1000 can compound over 20 year time period with an annual return of 10% if you contribute $200 to your portfolio every month.

"Compound interest is the 8th wonder of the world", - Albert Einstein

2. Inflation.

The inflation rate tracks how quickly the prices of goods, services, commodities, etc. are rising. In the United States, the inflation rate has been at about 2% for the past 5 years. This means that today a cup of coffee can cost $3 but most likely you will not be able to buy the same cup of coffee for $3 in 5 years from now. It will most certainly be more expensive because of inflation.

This is why you should never keep all your savings in cash because inflation would be slowly eating it away like a parasite. To put it simply, if you keep all your savings in cash - you are losing money every year. Wealthy people don't work a job to accumulate their wealth - they let their money work for them in the background compounding over time, getting dividends, and their assets appreciating in value.

Inflation rate in the United States, 5-year chart

Just as you can buy an apartment in Tel Aviv, rent it out and get a return on investment in form of rent payments every month - you can buy stocks of Coca-Cola that would pay you dividends every quarter. The difference is you need a lot of money to invest to buy an apartment whereas one share of Coca-Cola costs a little above $50. That's why everyone can and should invest. It is accessible for everyone and you don't have to be rich to start. Instead, you can grow your wealth patiently over time. Besides, unlike real estate, stocks don't require any maintenance - you can buy them and forget about them for many years, occasionally checking your portfolio.

3. Historically the stock markets have gone up.

Overall, for the past 100 years, stocks have had only one direction - they have gone up.

Of course, there have been nasty dips, stock market crashes, and periods of stagnation. However, if you zoom out and see the bigger picture the truth remains the same - stocks have gone up! See the performance of the S&P 500 index overtime on the chart below.

4. Use the power of compounding.

To put it simply, compounding is earning interest on interest. If you get a steady return on your investment (nothing extraordinary, just a good steady return) for a long period of time (30,40,50 years), that investment grows much bigger than you might think even possible.

For example, you invest $1000 and it gives you a return of 7% every year. By the end of the year, you will have $1070. Next year $1070 will turn to $1145. The year after your $1145 will turn to $1225. In 30 years it will turn to $7612. The longer you hold it the more exponential the growth will be. With time it gains more and more power. If you hold it for 30 more years the $7612 will turn to $57944. Amazing isn't it?

If you understand the power of compound and start investing as early as possible in life - you will be completely financially independent by retirement and will be able to live the life you want without ever worrying about money. You don't need to be rich or have a lot of money to start growing your wealth now. All it takes is a little knowledge, discipline, and patience.

You are welcome to use the compound interest calculator here and see how much you can earn overtime.

5. Investing in stocks will earn you more money than keeping it in a bank.

The banks in Israel won't pay you more than 2.5% interest on your deposits. Usually, it's even less. Interest rates in American banks are below 1%.

The stock price of Apple has increased 353% for the past 5 years. That's a 70.6% return on investment annually. There are endless opportunities in the stock market today. S&P 500 has appreciated 112% for the past 5 years. That's a 22.4% annual return on investment.

Still, want to give your money to the banks?

6. Today it is easy to invest in stocks.

To start investing today, all you need is a device with an Internet connection. It takes a few clicks to buy some shares of a company. It's way easier and quicker than investing in real estate, starting a business, or other investments of the sort.

It doesn't mean however that you should buy shares of a company that you know nothing about. When you are shopping for a new smartphone, you are doing research to see what pros and cons each device has, you are looking up reviews on YouTube, reading articles to see which phone has the best camera, and so on. Why would buying a stock of a company be any different? You are investing your hard-earned money into assets that are supposed to help you grow your wealth.

Don't just buy stocks blindly without doing any research. You don't have to do any hard technical analysis. Just look around you. You are already using a ton of great products that are produced by great companies. Maybe you have an iPhone and you enjoy using it and all your friends use it too. That must be for a reason. Maybe that would make you want to invest in Apple and be a part of their success.

There are a ton of communities online where smart people write countless amounts of very useful information on many stocks, there are online communities where retail investors discuss stocks all day long (Telavivy is one of them). You should use the power of the Internet to your advantage.

The Internet is the most powerful thing ever created by human being.

7. Create a source of passive income.

There are great dividend-paying companies that will pay you cash on a regular basis.

American companies usually pay anywhere from 0.5%-8% in dividends. For example, if you have a $10.000 portfolio of 10 stocks with an average dividend yield of 4%, that will earn you $400 every year, or $33 every month. That is money earned while you sleep - you don't have to do any work to earn it. If you continue to deposit money every month and reinvest all your dividends back into your portfolio to buy more stocks - you will accumulate your wealth at a nice pace. Use the wonders of compound interest to your advantage.

8. Investing is fun.

You will learn a lot about the stock market, how companies make money, how the economy affects them. You will get to know the CEOs behind the wheel, what makes their companies successful, and what mistakes they make.

It's fun to watch the stock that you picked go up over time and then up more, and then more. One day you will open your account and see the progress that you've made. You will feel very proud and satisfied with the financial decisions that you had made. You will remember how you chose to buy some great stocks instead of just another pair of the coolest Nike shoes for some temporary endorphins and that now, after a few years, it's paying you back. You will say thank you to yourself!

Sometimes you will see the red in your portfolio but that's the nature of the market. Stock prices go up and down all the time. You will learn to see the bigger picture and ignore those short-term price variations. Knowing what you are doing gives you a lot of confidence and it will help you ignore the dips in the market because you know what you own and you made informed decisions to invest in the companies that you like.

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