5 Reasons to Invest in Stocks

The stock market halved between 2008 and 2009 and with it, so did retail investors' confidence. Since then, the stock market has been a roller coaster ride, leaving most investors scared to tip their toe in.

Prior to the Great Recession, most people viewed the stock market as a great way to maximize returns on their capital but with a lost decade of equity returns, many have been left skeptical. Some people now believe it is a better idea to keep their money in a savings account or Certificate of Deposit until the market “recovers”, but they're wrong. Here's why:

1. History has shown us that, over the long run, stocks have performed strongly. The S&P 500 has actually delivered 8-10% annual returns on average over the past 100 years (source). This indicates that long-term investment in the stock market yields higher returns. As an investor, you shouldn't be troubled by a couple years of rockiness and instead should be looking at the long term.
2. As Warren Buffett says, “Be greedy when others are fearful”. You're missing out on great opportunities by sitting on the sidelines when things get dicey. That's often the best time to invest. For example, the S&P500 delivered a 80%+ return between the bottom in 2009 and today (Feb 2012). I'm not saying it's easy to achieve that, but even if you bought in half way along the ride with long term thinking, you would have done very well.
3. Stocks can be a great source of income. By buying established companies that pay a dividend, you instantly get a source of income from your investments that will often be at a similar percentage to your savings account or Certificate of Deposit, if not better. As an added bonus, by reinvesting dividends, you'll compound your returns and that can make a huge difference to your returns.
4. Stock market history has clearly benefited the patient among us. The sooner you can start building up your portfolio through someone like ShareBuilder, paying in a small amount each month, the better off you'll be in the long term.
5. Over time, inflation will decrease the value of your dollar. The money you save under your mattress today won't go as far ten, twenty, or thirty years from now. Investing is a great way to combat this.