I cringed as I paid $17 for a cocktail that was once $11 at a local bar I’ve been frequenting for the last 10 years. It was my first time back at this place since the pandemic started.
I don’t blame them for jacking up their prices — restaurants and bars suffered massively during the pandemic.
And this phenomenon is not just unique to bars and restaurants trying to make up their lost revenue via increased prices. The prices of everything have gone up, including necessities like gas, food, and housing.
According to the Labor Department, the Consumer Price Index (CPI) — which measures the average prices of various goods and services over time — increased 6.8% in the last year.
This increase is also known as the inflation rate.
Meanwhile, the national savings interest rate over the last year was a measly 0.06%, according to bankrate.com.
So, the cost of stuff increased 6.8%, on average. The money in your savings account earned 0.06%.
That means your money lost 6.74% in value.
Inflation is the number one destroyer of wealth.
So, where can you park your money so it will grow and generate a real return — that is, a return above the inflation rate?
The stock markets.
And here are three reasons why you should invest in the stock markets:
1. The stock markets are a hedge for inflation and have historically earned more than the rate of increase in the cost of living.
So instead of letting your money sit in a savings account and lose value, investing your money in the stock markets will allow your money to grow and keep up with the rise in the cost of living.
In the last year, the U.S. stock markets (specifically the S&P 500 index, which contains the 500 largest companies in the U.S.) returned 29% for their investors.
Yes, please, I’ll take that type of return over a whopping 0.06% in my savings account!
To illustrate, if I had put $1,000 in the stock markets a year ago, it would have turned into $1,290. A return well above the inflation rate of 6.8%. That means I made a legit return. A real return.
If I had left my $1,000 in a savings account, I would have earned $0.60.
Not even a whole dollar. I wouldn’t even be able to buy a pack of gum. How sad.
2. Investing in the stock markets is like taking an interest in your day-to-day life. With all the things that you’re already purchasing — like the foods that you eat at McDonald’s, Starbucks, and Chipotle, to the clothes that you wear from Under Armour, Lululemon, or Nike — everything you already pay for on a daily basis, you might as well get some of it back!
Consider it a lifelong discount on everything that you’re already buying.
When you make companies rich, you, as the investor, make money as well.
3. Investing in the stock markets is one of the easiest ways to make money — this is true passive income. It’s one of the few ways to eat, sleep, go to work, and go about your day while your money makes money for you.
You don’t have to hustle or sell anything to anyone. You only need to convince yourself to do this, but you have to do it right.
That means not treating it like a casino!
Over the past year, we’ve seen what happened with the GameStop saga — where people got caught up in a pump and dump scheme fueled by Reddit users encouraging everyone to pile into this one stock.
People gambled on the hopes of the stock going up and making a boatload of money over a short period of time. It didn’t end well. And many people lost money.
The proven and best strategy, which is the bare minimum of what you need to do to grow your wealth, is to invest in broad market index funds. That is, invest your money where you get exposure to hundreds, even thousands of companies at the same time.
This way, if a few companies go under (and it happens), you’ve got other companies still standing, making you money. Your money won’t go to zero.
But you must give your investments time to grow. Time to ride out the short-term volatility — the ups and downs of the stock markets.
No matter what is going on in the world, companies are making money, whether we’re going through a pandemic, election, recession, or even depression.
And when companies make money, you, as the investor, will continue to make money.
Cox, J. (2021, November 10). Inflation has taken away all the wage gains for workers and then some. CNBC. Retrieved December 16, 2021, from https://www.cnbc.com/2021/11/10/inflation-has-taken-away-all-the-wage-gains-for-workers-and-then-some.html
Goldberg, M. (2021, November 30). What is the average interest rate for savings accounts? Bankrate. Retrieved December 16, 2021, from https://www.bankrate.com/banking/savings/average-savings-interest-rates/
News Release. (2021, November). Bureau of Labor Statistics. Retrieved December 16, 2021, from https://www.bls.gov/news.release/pdf/cpi.pdf.
Domain Money, Inc. is providing this information for informational purposes only. While Domain Money believes that the information contained herein is reliable and derived from reliable sources, it makes no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information. Domain Money expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed. The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities or cryptocurrency, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service. Investing comes with inherent risks and you should always invest within your means and risk tolerance. Past performance is not an indication of future returns and you should always consult a financial advisor prior to making investment decisions. Please see important disclosures at www.domainmoney.com/legal.