Why invest in the stock market?
Since the stock market is merely a marketplace where you can purchase ownership stakes in thousands of different companies, what makes this a potentially good place to invest for your future? The answer is simple: Buying an ownership stake at a reasonable price in a group of businesses that grow in value over time can be very rewarding.
Although there is no guaranteed return when investing in the stock market, the return from buying a small stake in a widely diversified basket of hundreds of large U.S. traded public company stocks has resulted in average returns of more than 10% per year over the last 50 years (we’ll be studying this in more detail).
On the other hand, investing your money in a savings account at the local bank is very safe and the return of your investment as well as a small interest rate is guaranteed. However, over the last 50 years, the average return from an investment in a savings account has been far below 10% per year.
The potential to achieve far higher returns on your investment in the stock market than placing the same amount of money in a savings account (or most other investment alternatives) is the main reason to invest in the stock market.
And here’s the good news! It doesn’t have to be an all or none decision. You can invest some of your money in the stock market and some in other investments. We’ll cover all of these issues as we move through freshman year and beyond.
(But, don’t worry! We’ll move along fast—there won’t be enough time to drink beer, eat your feelings or put on those extra pounds for a “Freshman 15!”)