Why does investing matter?
So why should you bother with investing? For centuries, investing in businesses has been the primary driver of wealth for individuals and families.
Investing is a tool to help individuals and families plan, save, and grow their money to meet their needs and goals.
Investing allows individuals to put away money today to save for the future, while allowing the power of compound interest, dividends, and appreciation to grow their money over time. Investing inherently involves risk, however over the long term investing into the broad market has shown to deliver consistent high single digit returns over multiple decade long periods.
By choosing to not participate in investment activities individuals who don’t invest will be left behind and may struggle to meet their long term financial goals.
Most people are familiar with the concept and according to recent data from the Pew Research Center, over 52% of families in the U.S. are invested in the stock market. While these figures are good, that still leaves 48% of the population uninvested in the stock market. Additionally, only 19% of families making less than $35,000 per year are invested in the stock market. This is especially concerning given that lags behind the U.S. in terms of median household income and poverty rates.
There are of course other types of investments, however for most people the stock market should count for a majority of their investment portfolio.
The discrepancy between who is investing and who isn’t is largely due to a lack of trust. However, investing is easier and more affordable for average families than ever before. Digital platforms, low fees, and streamlined account openings make investing easy. There is also a wide assortment of types of investment accounts with all sorts of tax advantages that can incentivize individuals to continue investing.
One of the most common critiques of investing is that the stock market is basically gambling and that people should stay away from it. However, this is a gross oversimplification and misrepresentation of the basic concept of investing. While there are certain aspects of investing in the stock market that can be compared to gambling the core principle of ownership in a business is the focus and reason that people invest.
Of course all-in bets on risky individual stocks, day trading, and other types of risky investing are more similar to gambling than investing; these are not the types of activities that any investment professional would recommend participating in unless you are willing to lose all your money.
It’s also important to note that investing is not always a stable and guaranteed endeavor and there can be exceptionally good and bad years. The most important thing a potential investor can do is to consistently invest in the market. If you’re not already investing there has never been a better time to get started.
Max Provencher is a senior at Searsport District High School. He currently serves as the Chapter President and founding member of the Searsport Future Business Leaders of America, Vice President of Maine FBLA, and serves as the FBLA National Treasurer. He helps to promote business education and financial literacy to over 200,000 members across the globe. Max is an avid investor in stocks and bonds, and works hard to promote financial literacy in schools as a member of the Maine DOE Student Cabinet. In his spare time he enjoys playing golf and running with his Airedale terrier, Ginger.