The stock market is not just for rich investors.
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Jeremy Siegel, Professor of Finance at Wharton School, who wrote the classic investment book Long-term inventorywell-known is that it calls the stock market “the greatest wealth creator of history.”
However, a recent Gallup study found that currently only 62% of US adults are invested in the stock market through individual stocks, mutual funds, or retirement accounts. Those who are not invested may be avoiding stocks due to lack of cash, low risk resistance, Wall Street mistrust, or inadequate financial literacy.
So, today, let’s cut all that confusion and discuss 10 reasons why every American adult should be invested in the stock market.
1. Savings accounts are not worth the better inflation
From 2004 to 2024, the average annual inflation rate in the US was 2.5%. During that same period, US savings accounts paid an average annual yield of 1%. So if you simply kept cash in your savings account, your purchasing power would have been steadily withered. Federal Reserve hikes in 2022 and 2023 have increased yields on savings accounts, CDs and T-builds from 3% to 5%, but those yields will shrink again as interest rates drop.
2. Bonds don’t always beat inflation
Some bonds, such as the Ministry of Finance Protected Inflation Securities (TIPS), Series I (Inflation Tracking) bonds, and the Long-Term Treasury, are designed to respond to inflation. However, most series EE (fixed interest rate), municipal and corporate bonds struggle to go ahead of that curve. Some of these bonds may outweigh inflation in the short term with higher yields, but typically have far more credit risk than lower bonds.
3. The S&P 500 outweighs inflation
Meanwhile, the S&P 500 (index of 500 major public companies in the US) has generated an average annual revenue of over 10% since its inception in 1957. So, if you don’t want to worry about individual stocks, you can directly invest in the S&P 500 via the low-cost Vanguard S&P 500 ETF. (nysemkt: flight).
4. It takes nothing to get started
In the past, investors were usually charged for each trade. However, fee-free trading, which has been popularized by new trading platforms like Robinhood Markets over the past decade, has become an industry standard.
5. Fractional trading makes investing even easier
With some of the top stocks in the market trading at hundreds or thousands of dollars per share, it seems like you’ll need a lot of cash to get started. That’s been the case in the past, but most brokerages now offer small deals. This allows you to gradually accumulate stocks in high-end stocks such as Nvidia and Amazon.
6. Small investments increase over time
Investing $100 a month with a modest return of 8% per year will increase your profit to over $150,000 in 30 years. Therefore, you don’t necessarily have to secure a lot of cash to thrive in the stock market. You need to make consistent bite-sized investments.
7. Top stocks are not as volatile as you think
There is a lot of dangerous and unstable stock. However, there are also many evergreen stocks that pay predictable dividends and generate fairly stable long-term returns. Coca-Cola shares, for example, have grown by 213% over the past 20 years. If we were reinvesting dividends, we would generate a total return of 473%, easily surpassing inflation. Warren Buffett’s Berkshire Hathaway spiked 786% over the same period.
8. The best way to get financial education
The stock market may seem confused, but it becomes clear when you understand a company’s business model, evaluate revenue reports, and realize that only simple arithmetic is needed to calculate the valuation of a stock. Understanding these basic metrics makes it easier to analyze stocks and understand the broader financial markets. Teaching yourself how to invest is a great way to increase your financial literacy and make smarter decisions with money.
9. You need to secure your retirement today
Being smarter with money can help you retire faster and more comfortably. However, according to the Federal Reserve, only 54.3% of Americans with retirement accounts, and only 4.7% of these accounts reached $1 million in savings. Building a portfolio of funds traded on stocks, index funds and exchanges can help you join that elite minority.
10. Passive income gives you more freedom
Building a $1 million portfolio will allow you to spread it to conservative dividend stocks paying 4% to 5% yields, earning additional revenue of $40,000 to $50,000 each year. If you don’t need that cash immediately, you can reinvest in the same stock to make your profit worse. That’s why stocks are undoubtedly one of the world’s biggest wealth creators, and why every adult in the US should be exposed to some extent in their retirement accounts to the stock market.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Leo Sun holds jobs at Amazon and Berkshire Hathaway. Motley Fool has jobs and recommends Amazon, Berkshire Hathaway, Nvidia and Vanguard S&P 500 ETFs. Motley Fools have a disclosure policy.
The Motley Fool is a partner at USA Today, providing financial news, analysis and commentary designed to help people control their financial lives. The content is produced independently of USA Today.
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