If you are a lady that has never invested before, learning about stocks probably does not come naturally. If you are not seasoned with investing, do not worry. There are great resources to help you learn, such as investment books and The Motley Fool services. If you do not already understand stocks, read up on some online or printed finance resources.
After you learn the basics of the stock market, you may still feel uncomfortable purchasing a stock of a company. Perhaps, you read about volatility and timing the market and that put you off. However, investing in stocks is very profitable especially over a long period of time. Saving slowly can positively impact your finances.
Understanding all the good reasons to invest in stocks might help you pull the trigger on your first purchase. Read on to learn about 4 great reasons to invest in stocks.
Stocks’ Growth is Compounding
One of the greatest reasons you should invest in stocks is their compounding interest. Let us say you invest $1,000 in a stock in year 1 of your investment journey. If you gain a 10% growth rate that year, you now have $1,100 in your stock investment.
In year 2, if your average rate of return is 10%, you will have a little over $1,210, and by year 5- it will be over $1,600!! The interest is compounding, meaning that after you gain money off of the interest, you make interest off that interest as time goes on!
Investing in Stocks is Simple
With all the advancements in technology, mobile apps, and the internet, it is extraordinarily simple to invest in stocks. There are many options available to women to purchase stocks, including various account types- such as:
- Taxable brokerage account
- Roth/Tradition/SEP IRAs
- 401(k), 457(b), and 403(b)
Stocks can be purchased within all 3 types of accounts. However, there are some differences that will be touched on briefly.
Taxable Brokerage Accounts
When someone says they are invested in stocks, they are usually referring to stocks that they own in their brokerage account. A brokerage account is a taxable account that you can use to purchase stocks of a company, ETFs (exchange-traded fund), and/or index funds.
There are many brokers available that you can open a brokerage account with today. Here are some of the top brokers you can open an account with:
If you are a more passive investor that would prefer not to have to research individual stocks, there is a solution for you. Robo-advisors are here to save your day. They are semi-automated to full automated investing platforms with a no-human component. You can set up automatic deposits, diversify automatically, and other great benefits with robo-advisors.
If you would like to learn more, check out this robo-advisor comparison for an in-depth look at the top robo-advisors. Here are the top 5 and what they are known for:
- Betterment – Great for diversifying funds.
- M1 Finance – Good if you like picking and choosing individual stocks.
- Acorns – Great for investing small amounts of money, frequently.
- Blooom – Wonderful for taking better control of your retirement accounts.
- SoFi – Fantastic option for lower-cost investing.
Roth and traditional IRAs (individual retirement accounts) are 2 types of retirement accounts that are not tied to your employer. You can open with a broker (like Fidelity, Vanguard, etc) and invest up to $6,000 per year total.
The main difference between the 2 is that money put into a traditional IRA is pre-tax and you pay taxes on your growth when you withdraw your money in retirement. Roth IRAs, on the other hand, are invested post-tax (meaning you paid taxes on the money already) and your investment grows tax-free. There are more differences between Roth and traditional IRAs.
401(k), 457(b), and 403(b) are all retirement accounts that are tied to your employer. They deduct an amount from your check that you decide, typically a percentage of your pay. 401(k)s is a general retirement account, whereas 457(b)s and 403(b)s are special employment retirement accounts:
- 457(b) is generally for government employees.
- 403(b) is generally for public education, healthcare, ministry, and non-profit organizations.
Money within any type of retirement account can be invested in stocks! They can also be invested in bonds, ETFs (exchange-traded funds), and index funds. However, the stocks you could purchase could be limited in your retirement plan!
Cash Sitting in an Account Loses Value
If you just hold cash in your checking and savings accounts with less than 0.5% interest, your money is not working for you. In fact, over time you will be losing money! You are probably thinking this does not make sense and are wondering why. The reason you lose value is simple:
Inflation is the enemy of holding large reserves of cash. In the US, the average inflation rate is around 3% per year. That means, if you are not making at least 3% interest on your money, you are losing assets!
Some stocks pay you a dividend, or share of the companies profit, into your account. Check out this article on dividends to learn all about them. You can do a few things with dividend payments:
- Reinvest them.
- Take the dividends as a form of income.
Since dividends count as a type of income known as “dividend income”, you have to pay taxes on it. If you invest enough into stocks and own ones with great dividend yields, you could potentially use dividends as a supplemental source of your income when you retire.
There are many benefits of investing in stocks. The main benefit is the growth of your investments over time. Historically, stock prices have only gone up despite the bear markets that routinely occur. With stocks, you can achieve a level of growth that is unparalleled with any type of standard savings account. So what are you waiting for? Buy some safe stocks.