Why It Pays to Invest in Stocks
If you have read my columns over the past few years, you know by now that I am a staunch proponent of intelligent investing through the stock market. To those of you who have heeded my advice, congratulations. You should continue to invest in the market, monitoring the performance of your portfolio and adjusting your holdings periodically.
For those of you who continue to sit on the sidelines, you will forever be an outside observer with your nose pressed up against the glass, watching your peers actively engage in the process of wealth creation.
Unfortunately, an alarming number of African Americans fall into the latter category, failing to place a single dollar toward serious investing. It has been proven that there is no better vehicle in which to place your assetsâ€”equities have produced an average annual return of 11% over a period of several decades. In fact, the Dow Jones industrial average reached 14,578 in Marchâ€”an all-time high.
So why isnâ€™t everyone taking the plunge? Most people may have accepted one of these three popular myths: 1) Investing in stocks is only for rich people; 2) The practice is much too risky; and 3) Itâ€™s too late to get started.
I would like to dispel those misconceptions. First, investing is for everyone. As spelled out in this monthâ€™s feature â€œWhy You Must Always Invest in Stocks,â€ you can start investing in the stock market with as little as $25 through an account thatâ€™s funded by automatic withdrawals. I always advise people to take full advantage of building their nest egg by participating in employer-sponsored retirement plans such as 401(k)s and 403(b)s. You can have a portion of your pretax salary deducted and let your dollars grow in these tax-deferred vehicles. In many cases, companies will match a share of your contribution.
As for the risk involved in investing in stocks, you may be facing a greater threat to your financial future if you place all your hard-earned dollars in a savings account or money market fund. With such low yieldsâ€”some lower than 1%â€”the returns on these accounts can be quickly eaten up by bank fees and inflation. In some rare cases, you might actually be better off stashing cash in a mattress.
Lastly, itâ€™s never too late to get started. Although thereâ€™s never a perfect time to invest, if you fail to commit a portion of your assets to the stock market you will definitely lose out on the ability to significantly build wealth.
Even if you remain a disciple of these misinformed myths, please donâ€™t pass along such erroneous notions to the next generation. Make sure your children access financial literacy programs and receive essential information about long-term investing. By doing so, you will at least place them on a course to a viable financial future.
African American men in particular have been slow to adopt sound investment practices. Therefore, I employed a direct approach with my sons at an early age to demystify the world of investing. As a result, I am proud to say that my two sons, Earl III (Gibby), who is 21, and Teddy, who is 18, have opened self-directed brokerage accounts. Growing into adulthood, they are using money theyâ€™ve earned and making their own investment decisions. I can think of no better lab for them to learn about the financial markets. They have the opportunity to witness the power of compounding as well as how the market reacts to economic and political events. Most importantly, they will become more confident and astute as investors as they watch their money grow.
The importance of consistent investing by African Americans is critical to building familial and entrepreneurial wealth in our communities. If we fail to embrace the most basic tenet of long-term saving and investing, we will miss out on an essential opportunity to secure our financial future.