Why Invest In The Stock Market

Why Invest In The Stock Market

Why Invest In The Stock Market

Put your money to work for you in the stock market. If you're not already investing in the stock market, you should be.

In recent years the retail investor, that's you and me, have been sitting on the side-lines and has just started to come back into the markets. Over the past two years the S&P has doubled, the DOW isn't far behind. That doesn't mean it's too late though. Now is as good a time as any to get in, and maybe better as we're sure the danger has past. If your hording money under your bed you're getting almost as much as the banks are giving for the typical certificate of deposit. Your savings account is getting almost nothing. T bills, although secure investments, never really do pay very well. The comedies have gone through the roof lately, so it may be better to give them a little time to cool off before jumping in with both feet.

At this point you're running out of options. But being the only option isn't the best reason to invest in the market today. The stock market is still trading historically low considering prospective earnings. On average the S&P components are trading at about 14 times earnings. Let's break this down; company XYZ makes $2 bottom line profit at the end of the year. At 14 times earnings company XYZ stock would sell at $28 per share. That's 14 X $2 (the earnings). In today's economy that's not bad, but one must believe sooner or later it will get better than it is right now. Now 16 times earnings is a far more common place to value the market. That would make company XYZ worth $32 a share. That's about 12% profit, and it would take around five years to make that in any of the instruments you could buy at your bank.

Some of those earnings that XYZ makes are going to go back into the company and be reinvested to help the company, and the stock price, continue to grow. And some of the earnings go to the stockholder as dividends. Many dividends are much greater than any CD from the bank. Always look for companies that have a track record of paying solid dividends over time. Companies across the nation have been trimming down and have become much leaner over the past few years in response to the deep recession we were in.

This means companies have been paying down debt, decreasing resources, increasing production, and investing in new and improved technology; in general, doing business better, faster, and stronger than ever before. This will give corporate America more fuel to grow, increase share prices, and pay higher dividends. Now is an excellent time to put your money to work for you in the stock market. If you know what you are doing when it comes to the stock market then you could well be in for a treat. Many people are scared of the stock market right now, but these people don't understand it properly. In all honesty, there is no real "bad time" in the stock market, but right now, it really is a great time to invest your money in the right places.

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