Why Invest in Stocks?

This article, Armchair Millionaire Community Bulletin: All the Wrong Reasons to Invest in the Stock Market, gives some good reasons to invest in the stock market. He says that “as you make your investing decisions, don’t be misled by clichés that insist that stocks are simply the ‘best’ investments out there. You’ll need to dig deeper to learn whether stocks are genuinely right for you.” This goes for any type of investment.

Another advantage of stocks is that they “give you an excellent hedge against inflation. So while inflation will eat away at your portfolio at the rate of 3 percent or so a year, stocks will out pace inflation to provide you with a positive net return over time.” This is discussed in Chapter 2 of the Intelligent Investor, where Jason Zweig says in his commentary “In 50 of those 64 five-year periods, stocks outpaced inflation.” In periods of very high inflation, companies and their stocks will suffer, however.

Finally the author, Lewis Schiff says: “Shares of stocks rise and fall–sometimes dramatically–but that does not mean that investing in stocks is gambling. There are no guarantees in gambling, but stock investing does give you one guarantee: By buying shares of a company’s stock, you will get a share of that company’s future earnings and growth. So on a very small scale, when you invest in the stock market, you get in on the growth of capital markets. And there is one thing that has been proven over time: Capital markets work.”

The article linked to in the first paragraph comes from www.armchairmillionaire.com, a site based around the book by the same name. It has some good points about saving and investing, similar to those in the Wealthy Barber: invest monthly into an RRSP (or US-equivalent), and contributing another 10% of your gross income to another fund. He emphasizes dollar-cost averaging and has a good conservative approach to investing in the stock market. He suggests investing in a mix of index funds, large-caps, small-caps, and an international fund.

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