This is crazy! Everybody struggles with their personal finances every now and then.
It can get time consuming, hard and messed up to handle your personal finances.
But here is the kicker; I am going to make it easy for you to manage your own personal finances – and even better yet; grow your personal finances by using the stock market.
All you need to do is to take a look at these 17 simple reasons why investing in stocks will improve your personal finances.
Let’s dive right in,
- Reason #1: Inflation rate goes toe to toe with your salary or profits
- Reason #2: Opening account at stock market is as easy as booking online movie ticket.
- Reason #3: You do not need a huge start capital to begin investing in the stock market
- Reason #4: You invest in people – not companies
- Reason #5: You can buy and sell shares anytime and from anywhere
- Reason #7: The likes of Warren buffet,Jack Bogle, Philip Fisher and Rakesh Jhunjhunwala – All successful rich billionaires invest in the stock market
- Reason #8: There is lots of flexibility in stock market
- Reason #9: You can extract your money from the stock market at any time you desire – with all your profits!
- Reason #10 The stock market teaches you risk management
- Reason #11: Huge tax exception when you invest in the stock market
- Reason #12: You will feel like a rockstar
- Reason #13 : Steady turtle wins the race
- Reason #15 You do not need more than couple of hours in a week.
- Reason #16 The stock market is designed to go higher over the time
- Reason #17 Much better chance of being profitable than wasting money buying lottery tickets
- Bonus Reason #18: Stock Market Case Studies: How other people have made profits from stock market & resources
- What’s Next??
Reason #1: Inflation rate goes toe to toe with your salary or profits
Before we dive into why you need to invest in the stock market and actual facts let’s create two scenarios
The first scenario is for you if you have a job
Let’s say you have a job in a reputed IT company.
You are 35 years old and you plan to retire at 50.
You boss is kind enough to give you a raise of 10% every year. The average inflation rate per annum is of 8%.
Your salary is 100,000 rupees per month, and your expenses are 70,000 thousand rupees per month.
The balance of 30,000 you keep at home as hard cash.
Another illustration is for my startup friends,
You own a startup, and you are 35 years old.
Your monthly income is of 100,000 rupees with 70 thousand rupees spent.
You keep surplus cash of 30.000 at home without investing anywhere.
In both of the above scenarios we assume that your lifestyle will remain the same
Now, here is how your cash balance will look like when projected 15 years into the future (in both of the above scenarios)
If you were to analyze the above table, you will realize that the savings you will have accumulated at the age of 50 will be approximately 1.3 cr rupees.
*Note that we have excluded any unforeseen expenses, lifestyle changes and we also assumed you were all on your own during this time.
Now think about this question; what would you do if you run out of those money just few years after your retirement?
Now check this out, had you invested your savings by some investment scheme, over the same period, I can assure you that you would have gotten a lot more out of your money!
It could easily have been 5cr or even 15cr depending on where and how you invest.
Now out of all investment options available for you on market, there is a high possibility that the stock market tends to provide higher returns than any other assets especially if your portfolio is diversified.
Equity is the best performing asset class in long term: Myth or Truth | AdviosKhoj
Have equities delivered the best returns over the long term? | MoneyControl
True or false? Stocks make the most money in long term | Rediff
Reason #2: Opening account at stock market is as easy as booking online movie ticket.
I am not going to lie to you, these days most of online brokers lets you open your trading account completely online without having to do any manual work offline
If you live in India then Zerodha let you do this easily. All you need is your Aadhar card number and PAN card.
Please let me know how other brokers available in your country do it.
Some, who can not offer this service, send their registered representatives to your house in order to collect all the required documents.
Then, once the documents are submitted, your account will be activated within 24-48 hours. Hassle free opening.
Choosing a Broker | Youngfinances
Investing in stock markets? How to choose the right broker in 4 easy steps | FinancialExpress
Reason #3: You do not need a huge start capital to begin investing in the stock market
Look, I do understand that you do not like the idea of investing a huge amount of savings instantly in any new scheme or new investment option.
And you should not be doing that either. It would be a financial suicide.
That is why I would like you to know that you can start investing in the stock market with mere pennies to few dollars. There is no minimum capital you need to have before you are ready to invest in the stock market.
You do not need to own a Ferrari or a big house at New York city to start investing in the stock market. As you get more experienced, you will naturally become more confident and willing to make bigger investments.
To start out with, you can try to find an interesting company that may be familiar to you. Take a look at their stock price and then try buying one share from that company.
HOW TO INVEST IN THE STOCK MARKET WITH LITTLE MONEY | FrugalRules
Minimum Amount To Invest In Share Market | GetMoneyRich
What is the minimum money I need to start stock trading in India? | TradeBrains
Accidentally, I made a lot of money from the stocks, after quitting my job | CashOverflow
Bringing up the topic about companies here might be a good idea, because:
Reason #4: You invest in people – not companies
As a long term investor i.e., if you to buy and hold stock for months and years you invest your capital into the people who run that company.
That means that you will have to study the company’s CXOs, Founders’ dream, visions and future plans for the company. Only then will you be able to judge if the company might fail or has growth potential, and if you think the latter then you should strongly consider buying shares in that company.
People trust people more than companies, which is why you often hear that a company’s share dropped after the CEO resigns. Always bear in mind that you are dealing with living human beings rather than a non-living company
So if you are thinking about making a long term investment in a company like Facebook, you will have to buy it based on whether or not you believe in Mark Zuckerberg’s vision for Facebook and if you believe that the company can thrive in the upcoming years with that vision.
Keep in mind that there is more to it than this, for example you need to look at Fundamental analysis of the company in question as well.
However, that is a topic in itself that I will save for another time! (when you are ready to start investing in the stock market ;))
You own a share in Apple, but let’s say Apple start to perform badly in terms of the sales during the last two years.
For some reason you believe that the company will perform badly this year too. Then, if you feel this is the best option, you do have the option to sell those shares instantly.
You can buy and sell shares at any time from anywhere in the world.
Say, you notice that a company, which was performing badly for years, suddenly started a huge new project and you strongly believe that the company now has a real chance to get successful.
This makes you want to buy shares of that company as soon as possible. Fortunately for you, you can just log into your DMAT account and buy those shares within seconds.You can buy and sell shares at any time from anywhere in the world. Click To Tweet
In the stock market you are free to do whatever you please (as long as it is ethical). You can buy the shares of any listed companies and sell them immediately or after a few days or months or even after years, just as you please.
There is no waiting time on the timeframe you need to wait before buying or selling the shares.When stock market is open, it is all yours. 😉 Click To Tweet
Reason #6: You go toe to toe with other hedge fund managers, banks, govt
Your pension scheme, retirement plans, mutual funds, bonds – All of this money the bank has invested into the stock market, which is why the bank is more than happy to hold your money and even offer you some interest in return!
By putting money in the bank you are investing into an organization where they basically use your finance to invest in the stock market effectively earning (huge) profits while only sharing a small fraction of that with you. Moreover they charge performance fees for doing it.
Want to know the best part?
You can be your own finance’s hedge fund manager.
The only difference is they have a lot of money at stake while you only need to take care of your own finance.Why would you let any gatecrasher eat your cake when you can have full piece? Click To Tweet
I am not saying that you stop investing in those options, by all means do it. Especially when you are just taking the first steps into this new frontier – it might be more profitable for you than doing it on your own.
But keep in mind that your guess of where the market is going can be as good as theirs!
Reason #7: The likes of Warren buffet,Jack Bogle, Philip Fisher and Rakesh Jhunjhunwala – All successful rich billionaires invest in the stock market
All people who are successful and rich know that if you want to grow your income at compound rate then stock market is the way.
We will go into some of the best case studies of people who started from nothing and became multimillionaires with the stock market being the “bonus reason”.
My aim is not to show you wishful dreams or tell you that the stock market is a “get rich quick” scheme, because it is not. The stock market does involve lot of hard work, patience and you can not be successful in it overnight.
Heck even overnight successes often have decades of hard work behind them which people tend ignore.
Let’s look at some of popular investors’ short bio,
Who does not know this guy?
It is no secret that Warren buffet has become one of the richest man on the planet by investing in stock market.
His formula? Buy and hold company shares to sell them on huge profits. It is said that, he has earned 22% return on his investments in the last 5 decades.
But did you know that in his childhood he sold chewing gum, coca-cola bottles and weekly magazines by going door to door.
Later his interest in stock market arose and he started investing in at age of 11.
His first investment was to buy “Cities Service” shares at price of $38. The price of that share dropped to $27. He then patiently waited for the price to go up and when it reached $40 he decided to cashed out.
He later regretted his decision when the price of the shares continued to increase; they reached $200. He mentioned that this turned out to be a great learning experience which taught him patience in investment.
He was born on May 8, 1929. His family was affected by the great depression. Because of that they not only lost home. His parents even got divorced as his father got into alcoholism.
After graduating from Princeton university in 1951 he began his investment career.
His innovative idea was to create the world’s first index fund mutual fund in 1975.
He was born on 1st August 1949 in Queens. He is the son of a jazz musician.
He begun his stock investment career at the age of 12.
His first investment was buying “Northeast airlines” share at cost of $300. This investment resulted in a huge profit as the share tripled in value when the airline merged with another company.
Today he owns one of the largest hedge fund firms in the world managing roughly $120 billions in assets.
His quote:Economy is not a complicated thing, It just has a lot of moving parts Click To Tweet
He is popularly known as India’s Warren Buffet. He was born on 5th July 1960. He is the son of an income tax officer.
He started with only 5000 rupees ($100) and made 8000 crore.
He earned 0.5 million just one year after he entered the stock market in 1986. He sold his first initial holding of “Tata Tea” at cost of 143 rupees which he purchased for 43 rupees.
He is famously quoted:If you do not admit it was your mistake you will never learn Click To Tweet
Reason #8: There is lots of flexibility in stock market
Here is the thing, in stock market you can be trader or investor or even a combination of both
An investor is one who buys and hold stocks for months or years.
He looks at a company using both fundamental analysis and he evaluates whether or not the people who manages the company are trustworthy before buying any company share.
A trader has no interest in holding shares for months or years. Fundamental analysis has very little to do with his trading style and neither has companies’ track record.
He makes his trading decisions based on technical analysis.. I will elaborate on technical analysis in another article, but essentially it is a way you can determine where the price trend is headed based on the information you can read from a candlestick chart.
There are two types of traders,
A Swing trader is one who buys hold it for days to few weeks before selling it.
A swing trader does not hold shares for too long, neither does he sell it the same day.
An intra-day trader is a person who sells his shares the same day that he bought them. This is the riskiest style of trading.
You do not want to be this type of trader if you are a new trader and just learning things.
I will suggest you to adopt the trading strategy of a swing trader, at best. The reason behind this is that new traders often have a human tendency towards wanting to see quick results.
Long term trading does not allow you quick results the same way that day trading does.
Moreover, day trading often leads to fast losses. Swing trading also helps you learn about the stock market. Later we will dive into learning about technical and fundamental analysis of the stock market.
Therefore my advice is that you adopt the style of a swing trader, because it gives you time to learn and it puts you in a safer spot; especially as a newbie in the field!
An additional thing to note is that when you go into both intra-day trading and swing trading you will need to learn and get familiar with Technical analysis.
In technical analysis you use stock charts to aid you in making your trading decisions. Here is a good post which will teach you how to read price charts and candlestick charts.
Technical analysis is also a great tool that will help you make decisions even if you are a long term trader.
Fundamental analysis and technical analysis goes hand in hand with each other, even though there is always debate over “Fundamental analysis vs Technical analysis”.
I will say we have terminology in game development world that “Artists and Programmers can not be friends but they both are an essential part of software development”.
Then there is also another type of trading which is getting popular, buying IPOs of startups.
Recent studies have shown that new IPOs were yielding 261% of return.
Intra-Day Traders | Investopedia
Is Swing Trading the Best Strategy for You? | Fool.com
Everyone Can Get Into the Stock Market—Even You | Feedster
What Is Swing Trading? Is It The Best Trading Strategy? | MorpheusTrading
Reason #9: You can extract your money from the stock market at any time you desire – with all your profits!
You made a profit today? Do you want to cash out right now?
Fear not, request your funds from the broker and you will receive it that that same day.
Unlike any other investment schemes, you will not pay to get your hard earned money back.
With a fixed deposit you lose interest, in bonds you lose your interest or pay a fee, but with the stock market you will be able to claim all of your profits without a penny spent.
Reason #10 The stock market teaches you risk management
The stock market does have lot of risk involved, and the higher the risk the higher the rewards.
In 2008-09 a lot of stocks down by huge percentage. But people who excel at the stock market brought those shares when they declined with the high risk of the market going down.
They persisted to see huge profits after a couple of years.
As you get a good grip over the stock market by learning from your mistakes and successes you will gradually learn risk management the hard way.
Therefore it is recommended that you learn something about risk management at an early time.
The good rule of thumb is to set up a stop-loss order, which is an order placed with the broker that ensures that your share will sell itself automatically if the share drops below a certain value that you decide for yourself. This kind of order makes it possible to minimize losses if for example you are on vacation or otherwise not able to monitor your positions.
My Personal Risk Management Strategy For Stock Trading | FtmDaily
10 Lessons Stock Trading Teaches About Success and Failure | entrepreneur
Risk/Reward Ratio 101: Everything You Need to Know | TraderHQ
Reason #11: Huge tax exception when you invest in the stock market
In India if you buy and hold shares for more than 1 year (365 days) then you are not liable to pay any taxes on the profit you generate from those shares. So yeah – Tax free!.
I am not sure about the rules in other countries, however I believe there must be some form of tax deduction. Let me know in the comments and I will update this paragraph!
Comparing Long-Term vs. Short-Term Capital Gain Tax Rates | InvestoPedia
Reason #12: You will feel like a rockstar
This is a fun one, wouldn’t it make you feel special when the company shares that you own increase in value?
It will boost your confidence, moral and you will feel at the top of the world.
When you tell your friends and family that you made money in the stock market they will be amazed. They might treat you like a rockstar.Nothing can beat human satisfaction and when it comes to stock market it is kind of good addiction Click To Tweet
It really is an awesome feeling to observe your shares value go high! However, sometimes it might be the other way around so you need to be patient and disciplined.
Reason #13 : Steady turtle wins the race
When your analysis (fundamental and/or technical) goes wrong, you have your risk management to cut your loses.
But if you get greedy or fearful, then your losses can increase. Even your profitable trades can turn into losses.
That is when you start to learn to be disciplined and patient. Whether it is in the real world or in the stock market, the ones with discipline will win the race (like the turtle vs the rabbit)
Reason #14 Investing can become your secondary source of income
As you persist in the stock market you can start to see your personal finance become better and better and you can actually rely on it as your secondary source of income.
I agree it can take few years before it actually happens, but no good thing comes easily.
Successful people in the stock market have a diversified portfolio which helps a lot in terms of profit and risk management.
Do not invest all your capital in one company because if that company’s share drop, then you will be heavily affected by it.
However, if you invest 10% of your capital in multiple good companies then you can still see profits even if it is only 2 out of 5 companies that does well on the stock market.
How Stocks Can Be A Second Source of Income | PersonalFinanceApprentice
Trading For A Source Of Income | PathFindersTrainings
Why The Stock Market Really Is The Best Place To Grow Your Money | MoneyUnder30
Reason #15 You do not need more than couple of hours in a week.
Look, I know you are busy doing other important activities, building your startup, attending your job, parenting etc.
Here is the good news:
Getting a grasp about the stock market and starting to invest money on it does not require a huge amount of time from your side.
All you need to do is to invest mere couple of hours out of your schedule per week to learn share market strategies and also to check out your holdings.
How Much Time Will It Take to Learn to Trade and Invest? | TheFreedomTrader
Reason #16 The stock market is designed to go higher over the time
If we look at some of the most famous stock markets in last 15 years you will notice that no stock exchange is lower than where it was in 2002.
Look at the table below. Here I have added the name of the stock exchange followed by the price of then and now.
By looking at this chart, we notice that during this period the stock market grew more than the inflation, which is why it is a good idea to consider investing in the stock market!
Reason #17 Much better chance of being profitable than wasting money buying lottery tickets
Some people believe using the stock market is equivalent to gambling.
I can understand the sentiment behind that; a lot of people have lost a huge chunk of money by blindly trading shares.
The main reason behind that often is that they base their trading decisions on some celebrity on TV or a friend who spoke well of the stock.
In some cases people have even made decisions based upon spammers sending them text messages about what to buy. It’s no surprise they lost trust in stock market.
Don’t let this deter you from using the stock market!
Yes, stock market do have high risks involved but you can earn good amount of steady income if you become disciplined, follow risk management and learn trading strategies.
Bonus Reason #18: Stock Market Case Studies: How other people have made profits from stock market & resources
I feel like you might love this bonus reason where I will give you 5 of the best stock market case studies! In these examples the investor started from almost nothing and still managed to convert that into a huge fortune.
As I mentioned in reason #7, I am giving away these reasons so you will get a good idea about how simple the stock market is and how it can help you manage your personal finance.
Rakesh Jhunjhunwala Story from 5K to $2.2 Billion | MoneyAlpha
SHELDON ADELSON: THE JOURNEY OF A CAB DRIVER’S SON FROM $200 TO $28 BILLION | BrainPrick
CEO Home Depot, Ken Langone Tell his Rag to Riches Story [VIDEO] | ValueWalk
From penniless immigrant to multi-billionaire: Thomas Peterffy’s wisdom in 13 quotes | YourStory
The Tim Grittani Story: How a 23 year old turned $1500 into $128,000 in 1 year | QuickSprout
Did you love any of the reasons I mentioned here? Let me know in the comments.
Moreover, if you now feel more ready to start investing and boost your personal finances then take look at these getting-started guides,
From Beginning to End: A Successful Trader’s Journey | TheBalance
Beginner’s Guide To The Share Market | WomensWeb
How to Start Investing in Stocks With Less Than $1,000 | InvestorPlace
Stock trading 101: Listening to the market | DigitalJournal
10 Great Ways to Learn Stock Trading as a New Investor | StockTrader
The Best Markets for First Time Investors – by Tom Matthews | MoneyFacts
How To Invest In Stocks Online, Even If Your Idea of Financial Planning Is Waiting For Those Shoes To Go On Sale | Bustle