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Why is Investing Important?
Why is Investing Important?
Let's run a hypothetical experiment based on the actual S&P 500 Index's historical returns. We have 3 subjects to test:
Perfect Brittany: She knows precisely when the stock market bottoms and shoots up again. She buys at the exact bottom.
Unlucky Tiffany: She buys at the top of the stock market right before the stock market nose-dives down.
Uncaring Sarah: She dollar-cost-averages into the Index without caring about the recessions, wars, or assassinations.
None of the investors sell their positions for the duration of the experiment. Each invests $96,000, and their results are shown below the graph.
How does Sarah beat everyone else? Put, the S&P 500 issues dividends which Sarah doesn't miss by waiting for the top/bottom to invest. The dividend snowball begins to pick up faster due to her consistent dollar cost averaging. She soon outperforms everyone else due to this snowball.
However, it is worth noting that by saving your money, you would lose 2%, or currently this year, 7000% per year to inflation instead of GAINING by being in an index fund. Over long periods in the stock market, SAVERS ARE LOSERS!
(Additional Resources if you are Interested)
The Plain Bagel is an excellent channel for investing in education. It is trustworthy and reliable. It is worth checking out other videos from this channel.
Now that we Know Investing is Important, What is the Stock Market?
Now that we Know Investing is Important, What is the Stock Market?
The stock market is a circus where gamblers, Meme Stock monkeys, and Harvard top-class-graduate quants put their differences aside to collectively donate money to JP Morgan, Blackrock, or Wall street.
Due to the stock market's high volatility and utter unpredictability, fortunes could come quickly and leave even quicker.
Improper risk management, a general lack of financial literacy, and excessive greed are one of the biggest reasons for missed returns. Hence, it is crucial to learn the correct investment strategies BEFORE mortgaging your house to gain additional leverage.
So, what exactly IS the stock market?
Investopedia is the Bible of the stock market. If most of the inhabitants on r/wallstreetbets used Investopedia before "Yolo" ing their grandma's pension on the stock market, the world would be a true utopia.
In short, the stock market is a set of exchanges where shares of public companies are bought and sold. If a company has 100 shares and you own 1 share, you theoretically own 1/100 of the company.
Rumors, manipulation, and news worldwide drive the stock market in constant fluctuations.
If investing in the stock market and getting a great return is as simple as just dollar cost averaging, why isn't everyone doing it?
Simply put, investors don't buy Index Funds and purchase individual stocks, shorts, and leverage because they believe they can generate a better return than the market's guaranteed return. (I call this, Steak and Lobster Mania).
Yes, he actually did say this. Investing is actually quite simple "Buy Low, Sell High." However, the "when, how, what, where" separates investors.
In the following few pages, we will dive into the proper process for investing and the correct investment philosophy.
On this page, you learn why investing is important and what the stock market mania is all about.
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