Tags: stocks | own | employee | wealth

5 Reasons Why You Should Own Stocks for the Long Haul

By    |   Monday, 06 April 2015 08:18 AM EDT

While eating lunch with one of my friends the other day, we got on the conversation of investing in stocks and he said something like this, "I guess I would if I knew how and why I needed to."

Well, that inspired me to write this article on why you should own stocks. So here goes!

These aren't in any certain order, but the first one I'd like to talk to you about is changing places from only being an employee to being an investor in a business.

As you know, whether we like it or not, the employee is at the bottom of the food chain and the business owners and investors are at the top of the chain.

As an employee you trade your time for money. Hardly anyone becomes wealthy that way. But as a part owner (being a shareholder of a publicly traded company), you're able to benefit from the earnings of the company.

You see, if the company makes millions or billions of dollars per year, you still make $10 to $25 per hour as an employee. However, if you're an investor, as the company earns more the stock price has a chance to go up more and make you more money. In other word, you're suddenly linked up to the profit machine of the company rather than just a workhorse for a company.

By being an investor in a company, you allow others to work hard to earn you money instead of you only earning money by exchanging the most precious thing you have (which is time) for it.

Secondly, you can get paid to be an investor. How so? There are stocks out there that pay you 2 to 5 percent per year in the form of dividends just as a way of essentially saying, "Thanks for being our shareholder."

I was reminded of this when I did my taxes this year and realized that just in one smaller account of mine, I made $1,296 in dividends last year and I didn't have to lift one finger for that amount, which equates to around $108 per month in income.

All I had to do was buy the stock one time and hold onto it. It was income I earned without having to think about it or put any energy forth in order to get it. How many things were you paid almost $1,300 for that you didn't have to think about or do anything for?

And if you allow those dividends to stack up for 20 to 30 years over the course of your career, they can add some really huge amounts of income to your retirement over time.

Said another way, by owning the right stocks, you get a second paycheck . . . another stream of income.

Thirdly, you'll own one of the few assets that tends to outpace inflation. If you look at the Forbes 400 list, you'll see that most of the wealthy got their money by either owning stocks, owning real estate or by owning their own business. (And yes, a few of them got their wealth through inheritance, which originated with someone before them owning stocks, real estate or their own business).

There are pros and cons to all of these. Your own business can be very rewarding but it's probably the riskiest way of making money. Many times, you have to push all of your chips into the middle of the table in order to try to pull off a business venture. If it booms, great! But if it fails, it can make you start all over in life, financially.

Real estate is a great investment too. But it has a couple of drawbacks. It's illiquid, meaning you can't just sell it any day you want. And typically when you "need" to sell it is when you're in a cash crunch caused by a job loss that was caused by a bad economy. The same "bad economy" makes it tougher to sell your real estate when you really need to. And if you can, it makes you take a huge haircut on the price because of the shaky economy at the time.

Stocks are generally very liquid. You can sell them most any weekday you need to and get your cash within just a few days of the sell. Additionally, buying shares of stocks allows you to be an incremental owner of a company.

So instead of having to put down $100,000 to $1 million of your own money to own a business outright, you can invest in a public business and buy as little as one share, in many cases. One share might cost you $5 or it might cost you $100 or more, but it allows you to decide how much you're comfortable with biting off and chewing financially.

This is why it's my personal opinion that stocks are the best place for most people to begin building their wealth. You can start small and build wealth over time and in chunks financially that you're comfortable with. Additionally, you can own shares in a lot of different companies in different industries, sectors and countries very easily. It typically costs you far more to get diversification in real estate or in owning many businesses.

So, back to my original point here. Stocks, real estate and your own businesses are the most common ways the average Joe can beat inflation. Yes, there other ways: owning commodities, foreign currencies, certain art, stamp collections, antique automobiles etc., but these require far more sophistication and time.

But outside of these things, there aren't a whole lot of things you can put your money into that will grow over time. Yet stocks are a way that you can beat the inflation game over time and preserve your purchasing power.

Fourthly, earning a paycheck in and of itself is generally not the path to riches. But what do so many people tell their kids? Go to college. Why? To get a good job. In other words, they want them to earn a good-sized paycheck.

However, if you get an annual raise (which is up for debate in the times in which we live), it's typically only a 1 to 3 percent raise. However, "real world" inflation tends to grow at 4 to 8 percent per year, on average. By "real world" I mean that you do not just trust the government data but you're really looking at what you pay for milk, eggs, bread, meat, gas, electricity etc.

Now, in year one or two, it's not evident that your costs to live are outpacing your paycheck. But by years five and 10, it becomes very evident that the money isn't going nearly as far as it used to. Most people's solutions to this are simply to put more people to work in the house (like a spouse or teenager, etc.).

However, if you start off investing properly, there can come a day where that spouse or other family member doesn't have to work to bring in the income. Besides, wouldn't you rather your loved one work for the betterment of your own household than that of someone else's?

So paychecks and "good jobs" aren't typically the path to wealth. They're the path to "getting by." You've got to take part of your income and invest it in something that will go up over time.
That means you've got to live under your means in order to save money for emergencies and to save up for investing. Yes, that may mean that you have to downsize. Don't worry. It only hurts once.

After that, you'll be glad for your new position in life because you'll be sleeping easier since you've got a cushion for emergencies and you have investments for your future (which will matter far more to you than that fancy house, car or boat). You'll find that you and your spouse have far fewer "money fights" too and there's a bigger statistical likelihood that you'll remain married and not divorce (which is a money-killer in and of itself).

And my final reason why you should own stocks for the long haul is that you'll be a beneficiary of the growth around the globe.

Right now, if you're just a consumer of goods and services, you're on the wrong side of the coin. As more people are birthed, more demand for food, clothing, services etc. pushes the prices of most things up, your entire life.

Well, if you're an investor in a company that is filling the needs of these people and therefore making money from them in exchange for their product or service, then you're on the right side of the coin.

You're able to actually benefit from the growth that's going on in the world as the business can have more customers and meet more needs and wants of the global population. As that happens, the earnings of the company go up even more and over time so does the share price of the stock you own, making you richer.

So, the bottom line is, how you position your money will determine how well-off you end up being. If you're strictly a consumer, you're not likely to end up all that well-off financially.

However, if you're an investor, your future can look very bright! And if you don't know where to get started, come follow me in the Ultimate Wealth Report newsletter and I'll introduce you to the world of stock investing at www.ultimatewealthreport.com.

God bless!

About the Author: Sean Hyman
Sean Hyman is a member of the Newsmax Financial Brain Trust.
Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

© 2024 Newsmax Finance. All rights reserved.

While eating lunch with one of my friends the other day, we got on the conversation of investing in stocks and he said something like this, "I guess I would if I knew how and why I needed to."
stocks, own, employee, wealth
Monday, 06 April 2015 08:18 AM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved