3 Reasons Why Investing in the Stock Market is the Best Way to Beat Inflation

By Unifimoney Editorial Team on The CapitalSource: https://www.macrotrends.net/2526/sp-500-historical-annual-returnsBut what if you invested right before a correction? A Schwab study compared five different investors who invested in the S&P 500 index fund at different times throughout 20 years. The result? Even Rosie, who invested every year at the peak of the market, earned 50% more than she would have if she hadn’t invested in the market at all. Larry Linger, who didn’t put any money into the stock market, was left with the lowest amount after 20 years.You only lose your money when you sell. If you keep your money in the stock market, compound interest does its magic and your investments grow exponentially. There is no other investment that does this consistently.2. You can set it and forget itIn order to beat inflation, you want to be making at least 2% every year. There are a few ways to do this: start a business, invest in property, start Forex trading, invest in startups, and so on.All these activities require time, energy, and expertise. Property management is not passive at first and requires a lot of upfront capital. Cryptocurrencies and Forex trading require a lot of knowledge and constant updates on the market. Investing in startups and building businesses are probably the most time- and energy-intensive of them all. But stock market investing? You can set it and forget it. You can set up monthly contributions and never look at the market again. You don’t need upfront capital, you don’t need specialised knowledge, and, with a Unifimoney account, you soon won’t even need a brokerage account.Why can you set it and forget it with the stock market? This is thanks to passive index funds. An index fund is a “basket of stocks” that holds the same amount of shares in the same companies as an index such as the S&P 500 and the NASDAQ. This means that index funds make the same return as the index — not more, not less. Since these indexes have the top companies in them, you’ll get a pretty good return: 10% per year with the S&P 500. If a company goes bust or decreases in value, the index will simply replace it with another company.Index funds are managed by algorithms which is why they are “passive” and don’t require any active management. Isn’t it better if a highly experienced fund manager handled my money? Not really. In fact, passive index funds offer higher returns than actively managed funds. According to a study by SPIVA, 96% of US mutual funds failed to beat the market over a 15-year lifetime. Even a stock market expert who has spent years analysing the markets and companies can’t beat the market.The other large difference is the fees: with active fund managers, you could be paying over 1% every year (and not even beat the stock market!). With a passive index fund, you could be paying as little as 0.22%. It’s kind of a no-brainer.Just look at the table below to see the numbers in action. In his book, Andrew Hallam outlines three different portfolios with different fees across various timelines.3 Reasons Why Investing in the Stock Market is the Best Way to Beat Inflation was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Author: Unifimoney Editorial Team