Why invest in Stocks?

To start, let's define what a "stock" even is. In the simplest form, a stock is just a small ownership stake in a company. Think of the your favorite company, and visualize it as a whole pizza. When you buy a stock or "share" of that company, you are buying a tiny slice of the pizza. You now own that slice of the company. Stocks are not just numbers that go up and down on a screen, they are tangible evidence that you are the owner of a company. If you buy Apple stock, you are quite literally a co-owner of Apple.

What's the Big Deal?

If being a co-owner of Apple is not enough evidence for why investing can make you very wealthy, let me lay out two reasons you want to invest in stocks:

1. Barrier to Entry

Investing in the stock market is super easy. In the U.S, any legal adult can sign up for an online brokerage account within a matter of clicks. You can invest as much or as little money as you want, all from your phone. Even if you are under 18, you can still start investing today with a custodial account!

Compared to Real Estate, investing in stocks is much easier. To buy property, you need to save for a large down payment, apply for a bank loan, and go through hours of paperwork just to get your foot in the door.

2. Diversification

To start, let's define what "diversification" means: Simply, diversification is a strategy where an investor chooses to invest their money in numerous different assets instead of just one. The opposite of diversification, is concentration where investors allocate large portions of their money to one or just a few assets.

Many investors choose to diversify their money because it is a less risky strategy than concentration. Think about it like this: A concentrated investor owns one whole cheese pizza. If the price of cheese pizza goes down, then all of their investment goes down as well. However, a diversified investor will instead buy 100 tiny slices of pizza, all with different toppings and flavors. This way, if the price of cheese pizza goes down, just 1 of their 100 slices goes down in value.

When investing in the stock market, you get to decide how diversified you want to be. You can own slices of 1 company, 10 companies, or 100 companies! You can also invest in Exchange Traded Funds (or ETF's) which automatically invest your money into hundreds of different companies. The most popular ETF is the S&P 500, which automatically invests your money into the 500 most valuable companies in America.

Compared to Real Estate, investing in stocks allows you plenty of ways to diversify your money. When you buy a house, you are, in a way, buying one whole cheese pizza. If the price of your one house declines in value, so does your net worth.