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Why Investing in the Stock Market is Important

You have probably heard that it’s important to save money and that it’s never too early to start saving. You have probably also heard that it’s important and smart to invest that money in the stock market. To illustrate why it's so important to invest in the stock market, we have constructed a chart to illustrate the benefits of investing in stocks over 20 years.

As noted the initial invest for all three scenarios is $5000. For the bank account scenario we used 3% for the return rate. There are online savings accounts that offer a higher rate then this but this number is also greater then most traditional checking accounts. We placed the return on stocks at 10%, which is a good historical average. For the last column we used the 10% return on stocks, plus $100 was added to the account each month. This chart shows the importance of investing and also the benefit of adding a portion of your monthly salary to your investment account.

Initial investment of $5000

Year	Bank Account	Stock Market	Stock Market with Monthly Deposits
1	$5,152.08	$5,523.57	$6,780.12
2	$5,308.79	$6,101.95	$8,746.65
3	$5,470.26	$6,740.91	$10,919.09
4	$5,636.64	$7,446.77	$13,319.02
5	$5,808.08	$8,226.54	$15,970.25
6	$5,984.74	$9,087.97	$18,899.10
7	$6,166.77	$10,039.60	$22,134.64
8	$6,354.34	$11,090.88	$25,708.99
9	$6,547.62	$12,252.24	$29,657.61
10	$6,746.77	$13,535.21	$34,019.71
11	$6,951.98	$14,952.52	$38,838.57
12	$7,163.43	$16,518.24	$44,162.03
13	$7,381.31	$18,247.92	$50,042.93
14	$7,605.82	$20,158.72	$56,539.64
15	$7,837.16	$22,269.60	$63,716.63
16	$8,075.53	$24,601.52	$71,645.15
17	$8,321.16	$27,177.62	$80,403.89
18	$8,574.25	$30,023.47	$90,079.79
19	$8,835.05	$33,167.32	$100,768.88
20	$9,103.77	$36,640.37	$112,577.25

Tags: Advantages of Investing Advantages of the Stock Market Learn How to Invest

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Posted on July 25, 2007 6:54 AM | Digg | del.icio.us

Comments (6)

Mike L:

Great chart! I have some friends and co-workers that I need to show this to.

Posted by Mike L | July 25, 2007 11:57 AM

Kelly:

I've been wondering if I should start investing or not and this blog really helped me decide that I need to start investing really soon. I think I'm going to wait a little bit until the market stops going down.

Posted by Kelly | July 28, 2007 9:07 PM

Market Flavor:

Kelly,

Thanks for the comment and we are thrilled that our post helped you out. We would recommend spacing out your initial investment amount to protect yourself from a drop in the stock market. If you do this you can start with a portion in the market now and just add to it over the next few months or over the year. Look at our first post in the series “Market Timing, When to Buy Stocks.” We talk about watching the short term market, which you are doing, but we also talk about Dollar Cost Averaging which you might find very beneficial.

Posted by Market Flavor | July 30, 2007 7:23 AM

Anonymous:

Wow.....I knew investing was better then a savings account but without seeing it I didn't believe it.

Posted by Anonymous | August 14, 2007 8:45 PM

Anonymous:

WOW.....After reading this I'm increasing my monthly 401k paycheck deduction!

Posted by Anonymous | August 15, 2007 3:37 PM

LJ:

Just think about how much amount would be if the return was higher then 10%

Posted by LJ | August 15, 2007 7:34 PM