Last year, only half of Americans held investments.
Of the half who do invest, the richest 20 percent of households hold 93.3 percent of the stock market wealth. Fewer people are investing, and the wealth is becoming more concentrated.
So what’s going on? Why are fewer of us investing?
Per this CNBC article, some people who don’t invest believe two things; investing is confusing, and they don’t have enough money to take the risk. Those barriers can become far less intimidating when people learn it isn’t as confusing as it seems—and why it matters to take the leap.
1. Your money has an opportunity to grow
Investing can give your money the chance to grow much quicker than if you keep it in your savings account (or under your mattress). When you invest money in stock, you become a partial owner in a company. That means that if the company becomes more valuable, the portion of the company you own also becomes more valuable. Of course, investing involves risks and there is always the chance of an investment becoming less valuable and losing money over time. Unlike your savings account, invested funds aren’t FDIC insured so there’s No Bank Guarantee and May Lose Value (yep, those words are capitalized for a reason—it’s to make sure you see them).
Imagine you have $100 to invest, and choose to put that money into Totally Made Up Company. Let’s assume Totally Made Up Company does well—maybe they launch a successful new product or have a great sales year—and your share of the company grows with it. There are two main ways this happens; through dividends or capital gains. Dividends are regular payments to shareholders some companies distribute from their profits or reserves. Capital gains can happen when you sell a stock at a higher price then what you paid for it. The increase in value over time is called the rate of return, which, for the sake of this example, we’ll say is 6 percent. After one year, if you sell your shares in Totally Made Up Company for 6 percent more than you paid for it, your $100 will have turned into $106. (For the sake of a balanced example: it is possible you could lose 6 percent instead, and then you’d have $94.)
2. Investing is more accessible than ever
No, really. It is.
New technologies make it possible to buy fractional shares of stock. You don’t need hundreds of dollars to get started. As you get a better understanding of how the stock market works you can take risk on in small, measured steps.
Starting small means you can get comfortable with investing without having to risk a lot of money. Over time, those fractional shares and small investments can increase while you’re building your confidence as an investor.
3. You become an owner in the companies you care about
When you own stock, you become a partial owner in the companies you invest in. As an owner, you get to have a role in the growth of that company.
Say you decide to buy stock in your favorite department store. Now you’re a part owner in that store. Pretty cool, right? It’s a way to stand behind the brands that matter to you. Plus, when you shop at that store, you’re helping it grow. If the company grows, the value of the portion of the company you own can also grow.
Now's the time
Investing doesn't have to be daunting, but no one should expect to be Warren Buffett overnight (or ever). Now that you have the why, it all starts with one small step. Whether it's investing in your favorite company today or signing up for the waitlist to get Bumped—you got this!