There are many reasons to invest. But, the most obvious reason to invest in the stock market is to profit financially. In simple terms, this happens when the value of an investment increases and is then sold to realise a gain. You can also profit financially by earning dividends or accruing tax advantages. Regardless, the ultimate reason to invest should be to make more money.
Over the past 100 years the global economy has worked in your favor when it comes to stocks. Many individual companies have grown substantially helping shareholders to bank significant returns. Even with recent economic downturns, investing continues to carry a similar potential over the long term. Making money must remain your main reason to invest if you are to capitalize on this potential.
That being said, it’s easy to lose sight of this goal. Investing can be incredibly complicated and making investment decisions is tough. Further, you may find that you have other reasons for investing that can influence your actions and hinder your focus. Do you invest for any of the reasons below? If so, it’s time to take a look at your investment strategy and make sure it’s aligned with the number one reason to invest: to make money.
One reason to invest is to improve self-esteem
Do you want to be a smart business person with great influence? A financially savvy individual who makes lots of money? Many people would answer yes to these questions. Further, people who invest are often portrayed as fitting this image: they are educated people who wear suits to work or day traders on the market floor who spend their day running around, watching quotes change, and making predictions. The assumption is that they are doing their best to make a lot of money in a situation where every second counts. They are at the front of economic change and have great influence.
It makes sense to want to see yourself as someone who invests in the stock market when this is the image that’s portrayed. The reality is some people who invest fit this image, but most do not. The act of simply investing isn’t going to turn you into a smart business person who is financially savvy. Wanting to improve your self-esteem by seeing yourself in this light may cause you to fall prey to poor advice and scam tactics or pay exorbitant commissions. But, the good news is that investing will benefit you financially in the long run if you focus on the main reason to invest: to make money and not get side tracked by wanting to improve your self-esteem.
Another reason to invest is to increase social standing
Do you want to tell your friends you follow the stock market closely? Explain your investment picks and how much money you’re set to make? It’s natural to say yes to these questions as many people get a positive response when sharing this information. It makes sense given the stock market is often associated with intellect and intrigue as highlighted by news coverage about the topic. Top stations run a ticker documenting the current price of stocks while talking heads give their opinions on the market and individual companies. Segments are devoted to covering different sectors and analysts review what it means for the economy. When coupled with a lack of financial education, many adults grow up seeing this coverage on a regular basis without really understanding it.
As a result, friends and family with little knowledge about finance may be impressed when you say you invest. They may even want to hear your advice and ask you to teach them all that you know. There’s nothing wrong with talking about investing with other people. Even so, it’s important to remember the main goal is to benefit financially, not to increase your social standing. It’s an exciting topic to talk about, but even more so when you have a chance to make more money. Putting yourself in a place to succeed requires paying attention to a variety of factors and not just investing based on the response from others.
If your reasons to invest include wanting to build social capital and improve your self-esteem, chances are these reasons are overshadowing the number one goal of investing: to make money. You can lose lots of money very quickly by making foolish decisions when this happens. It’s easy to get swept up in the desire to tell your buddies you are a shareholder and imagine yourself as a trader on the market floor. If these images cloud your focus on making money, you may invest without doing proper research or truly understanding your risk.
Overall, it’s impossible to invest solely for the purpose of making money. In fact, it’s probably not wise since there are many benefits to investing. Further, wanting to gain social capital and improve your self-esteem aren’t horrible reasons to invest. They may even increase your motivation to succeed. After all, the best financial adviser can’t make decisions in a completely emotionless vacuum where the only goal is to make money. I don’t advise that you kick 100% of your emotion aside. It’s important to be mindful of your reasons for investing in the stock market. It can help you avoid some of the most common pitfalls and ensure that making money guides your actions.