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Why invest?

Investing in the stock market can be exciting, even riveting. Prices jump wildly and can double or halve over night. While investing can be a thrill-a-minute ride, is it really the right place for your savings? What if the markets take a dive? You could lose everything! Wouldn't you be better off parking your hard earned money in a nice safe bank account, or stashing it somewhere secret in your home?

The answer is no! Clear and loud. Are we nutty risk-loving maniacs who advocate investing as a thrilling, if dangerous, pastime? Absolutely not. We are cautious, sensible moneymakers who want to retire with a comfortable nest egg and have figured out that investing in the stock market is one of the best ways to do that. So what's all the hype about? Let's take a look at the numbers. During 2002, one of the stock market's worst years to date, the average real return on investing in equities was -24.5%. Ouch. So, if you had invested your life savings at the beginning of the year, things wouldn't be looking too good for you at the end of the year. However, if you had invested your life savings at the beginning of 1992, your average real return by the end of 2002 would be 3.9% - and that's including the massive dip in value that your portfolio took in 2002.

Think a bank can beat that? Think again. While a real return of 3.9% doesn't sound very impressive, consider that this is the return on your investment after factoring in inflation. If you had put all of your money in a high interest bank account (eg 3%) by the time inflation has come into play (for the sake of argument let's say inflation is set at 3.5%) you may even be worse off! A return of 3.9% above and beyond inflation is pretty good news. How about if you had invested your life savings at the beginning of 1982? Then you'd be looking at an average real return of 8.2%. Not too shabby!
Here are a few more reasons to consider investing as a vehicle for holding and growing your savings:
  • To have the opportunity for better returns than bank or annuity savings with similar liquidity of your investment.

  • To diversify your savings and wealth from other stores of value like real estate, your business, or inheritance, insurance products, or bullion.

  • For the added excitement of making an informed judgement to invest in, and share in, someone else's dream and see it unfold.

  • A personal interest in business news and the business world.

  • Enjoying a commonality of  interest with other investors.

  • Because you can't rely on the government to meet your financial needs totally; now, or in the future.