Investing in the stock market is one of the best ways to build wealth

Americans are feeling more uncomfortable with long-term investing in the stock market, even though it’s one of the best ways to stay ahead.

In 2021, 28% of Americans say real estate is their preferred way to invest for a period of 10 years or more, according to a Bankrate survey. About a quarter say cash investments, such as savings accounts or CDs, are their top long-term investment method, and just 16% say they choose the stock market, according to the website. financial web.

It’s a big change from the comfort of investing in the stock market. Just a year earlier, these markets had topped the list with about 28% of Americans choosing it as their favorite investment.

“To see that when the market is doing as well as it did last year, it’s surprising,” said Greg McBride, director of financial analysis at Bankrate.

The pandemic may have impacted the way investors think about investing and made many Americans aware of having cash on hand for emergencies.

“Unfortunately, investors tend to chase performance,” McBride said. “That’s often the pattern we see. Building wealth in the long run actually requires ingenuity in reverse.”

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Why the stock market makes sense for long-term wealth

Financial experts say that investing in the stock market with decades of discipline and patience is often the best way to build wealth.

Roger Ma, a certified financial planner at liveselaidout and author of the book “Work Your Money, Not Your Life.

For many people, their first stock investment is through an employer-sponsored retirement plan, such as a 401(k) plan. However, even for those looking to invest outside of those accounts, it’s relatively straightforward to get started through some of the no-fee online brokers.

“It has never been easier or less expensive for individual investors to get into the stock market,” says McBride.

Managing a retirement portfolio or other long-term equity investments can also be fairly easy, Ma said.

“You don’t need to know what to invest in, when to buy and sell,” he said. “It can be as simple as just buying a portfolio of funds or a target date fund that approximates when you want to retire.”

And, stock market compounding can multiply your savings exponentially. Lauryn Williams, a CFP and founder of Worth Win, describes investing in the stock market like walking on a moving aisle at an airport.

“You can walk, and you should still walk, most people walk when they’re on a moving path,” Williams said. “You’re still saving, but the moving aisle will get you there faster.”

Even if the market tumbles or stagnates in the months and years to come, experts recommend staying on track and being more selective with the companies you’re investing in.

“In terms of my long-term outlook, to be honest with you, stocks are the best place to stay, but I wouldn’t expect much from the big averages,” billionaire investor Leon Cooperman said in a statement. CNBC Financial Advisors Summit. “I was prepared to be in such an environment where I had to prepare my way to success.”

Stocks versus cash

In the long run, cash is generally not a great investment for building wealth. It’s much more helpful if you have cash for something like an emergency fund.

“Cash is perfect for short-term needs because there is no volatility,” says McBride. “But the lack of returns means it not only doesn’t build your wealth in the long run, but also erodes it.”

This is due to inflation or goods and services becoming more expensive over time. If you only save cash and don’t see high returns, you will have to save more and more to buy the same things as inflation rises.

In the wake of the coronavirus pandemic, this may be especially notable for Americans as inflation is picking up and prices are lifting.

One of the best ways to fight inflation is to invest in assets that will give you a higher rate of return, such as the stock market. In return for volatility risk, investors are rewarded with higher returns.

“Your biggest risk in the long term is investing too conservatively,” says McBride.

When real estate makes sense

Of course, owning property is also a great way to build wealth, especially one that can be passed on to generations to come.

Right now, people may be looking at real estate as soaring prices have increased the value of homes bought years ago.

“Main blocks have made many people millionaires,” says McBride.

But there is a much higher barrier to entry into owning real estate than investing in the stock market, and the much higher costs of buying and selling can eat into overall returns. That means for starters, it generally makes more sense to start with the underlying stock market investment and plan to buy property later on.

“It’s easier to get started in the stock market because you don’t necessarily need a large amount of money upfront,” says Ma.

He added that if you want exposure to real estate, that can also be done with a balanced portfolio by investing in real estate companies or real estate investment trusts.

The stock market will also give people much better investment diversity than real estate, which is a way to protect assets over decades of savings and investments.

“Diversity is the fact that you join different groups so that if one thing doesn’t work out, the other is likely to succeed, and overall, you come out on top,” says Williams.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.