Here is the 5 Best reason to invest in the stock market

Whether you follow the financial news or not, you inevitably hear regularly about rising or falling markets.

We are told on the news a huge crash , or a record rise in the stock market.

And periods of decline can seem so disastrous that one can come to wonder why invest in the stock market and risk losing everything overnight…

Unfortunately, the headlines very often tell only a small part of the story.

Of course, there are always risks in investing. But there are also advantages to investing your money in the stock market over the long term.

Investing can, for example, be an excellent way to grow your wealth, provided you do it correctly…

In this article, we explain why investing in the stock market can be interesting and everything you need to know before getting started.

1.Invest in the stock market to grow your money

This is usually the main reason why people want to start investing in the stock market: no more and no less than to make money .

By investing correctly, you have the opportunity to “make your capital grow”, that is to say quite simply to make your money work for you.

And beware: we’re not talking about “playing on the stock market” and having fun betting on individual stocks, but about setting up a long-term investment strategy (we’ll detail this point little later in the article).

There are two main ways to make money by investing: through capital gains or dividends.

Capital gains and dividends

  • Capital gain is the difference between the purchase price and the resale price of an asset such as a stock market share. If you buy, for example, an Apple share, it is hoping later to be able to resell it for more than you bought it – and therefore make a capital gain.
  • Dividends are a form of income paid by the company to its shareholders (those who own shares of this company). It is a sum of money that is taken either from the profits or from the reserves of this company. In concrete terms, you will periodically (often annually or quarterly) receive a sum of money proportional to the number of shares you own in the company in question. Please note : not all companies pay dividends, and these are not systematic either.

Which is better: dividend or capital gain?

Of course, we can directly say to ourselves that we would prefer to receive regular dividends rather than receiving a capital gain only on resale. But it is not necessarily so simple.

As we told you above, not all stocks, funds or ETFs pay dividends.

Companies that pay dividends tend to be large companies with large profits.

This also means that they are often well-developed, slower-growing companies . But that doesn’t mean you won’t make a profit either.

In the case of an investment strategy based on capital gains, it is then possible to invest in companies with more interesting growth potential.

These companies generally pay little or no dividends, precisely because they wish to devote their profits to their growth objectives.

You therefore have the possibility of having interesting performances over the long term.

In any case, it is important to choose a strategy that matches your profile and your investor objective .

And knowing that reinvesting your dividends rather than cashing them can also allow you to take advantage of the benefits of compound interest. Which brings us to the next point…

Compound interest

To illustrate the principle of compound interest , here is a little riddle.

If I gave you the choice between giving yourself €10,000, or giving you a penny and doubling it every day for 30 days, which of these two options would you choose?

When you invest money, you earn interest. In the case of compound interest, the interest generated will be added to your capital, and generate interest in turn .

So of course, it is “slightly” rare to find investments with interest of 50% per day for 30 days…

But you don’t need that to take advantage of the power of compound interest.

2. avoid losing money

Even if you’re not an expert in economics, you’ve probably heard of inflation.

Simply explained, inflation is a general increase in prices over a period of time .

Which means that every euro you have today allows you to buy less than what you could afford to buy before, for example 5 years ago. Your purchasing power is therefore reduced.

Overall, it’s a trend that makes things cost more over time (although it can vary, but we won’t go into details here).

For example, inflation was:

  • 1.1% in 2019
  • 1.8% in 2018
  • 1.0% in 2017

This means that your hard-earned money loses value over time and allows you to buy fewer and fewer things.

And when you place all your money in bankbooks like the 1% paid passbook A, you therefore somehow “lose” money every year because the interest rate paid does not make it possible to compensate for inflation. .

Of course, it is essential to keep money readily available, including in passbooks, for example to place your security savings .

But once your financial situation is stable, it is important to consider investing your money in such a way that your euros grow rather than lose them – and this is where starting to invest in the stock market can make sense.

In particular because investing money on the stock market can allow you to obtain higher returns over the long term than savings accounts or risk-free investments such as the euro fund.

Of course, the irony, and the difference with bankbooks, is that investing in the stock market involves the risk of loss. It is therefore important to educate yourself before embarking and to learn how to invest while respecting your saver profile and your projects.

You should also know that the risk associated with stock market fluctuations decreases the longer your investment horizon.

3.The passive aspect of investing in the stock market

What is interesting with the stock market is that it is generally simple to invest.

Provided you do it with a long-term objective, and not to seek to become rich in a few months with day trading .

In this article – and indeed all other Moneylo articles related to the stock market – we focus on long-term investing, not speculation .

Investing for the long term is usually easier than you think.

And above all, you don’t need to constantly have your nose in your accounts.

Once you know which tax envelope to choose , and you know what type of investment you want to make in these envelopes, everything can roll itself out quite easily.

Of course, you will have to do some research beforehand, and some adjustments along the way.

But unlike other types of investments, like buy-to-let investing, it’s almost all passive.

4.Invest in the stock market to diversify your investments

It’s probably no surprise to you: the love real estate and “investing in stone”.

The problem is that real estate can easily be overrepresented in our portfolios and assets.

And as investment experts (and your grandmother) say: it’s best not to put all your eggs in one basket .

It is important to diversify your investments, and investing in the stock market is a great way to do so.

In the event of a fall in a market (real estate, stock market, etc.), the rest of the investments can then allow you to limit the damage.

Especially since you can start investing in the stock market with very small sums , which is not necessarily the case with other types of investment.

5.To support businesses

Let’s be honest: even if we don’t doubt that you have a big heart 💚, supporting businesses and economic growth is probably not the number 1 reason you want to invest.

But it’s a pretty pleasant consequence of his investments.

Especially since it is now possible to invest responsibly , and to specifically support companies with a positive impact on ecology or social issues.

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