FAQ: Investing in the Stock Market – How It Can Help You Over Time

A Message from Penny Forward Founder and CEO, Chris Peterson

I recently saw a Facebook post from someone asking, “How does the stock market help me when I’m just struggling to pay for gas and groceries?” It’s a fair question! When your budget is tight, the idea of investing might feel like a luxury, or worse, something completely out of reach. But here’s the thing: investing, even in small amounts, can be a powerful tool to help build resilience for the future.

In this post, I’ll break down some basics about how investing works, how people can make money from it, and what it means to invest in a way that’s safe and sustainable. I’ll also touch on tracking spending and creating a spending plan to free up funds for investing.

How Do People Make Money from Investing?

Investing in the stock market is all about putting your money to work for you, and there are two primary ways that people make money from stocks:

  1. Capital Gains: This is when the price of a stock goes up after you buy it. For example, if you buy a share of a company’s stock at $10 and it goes up to $15, you could sell that share for a $5 profit (before fees and taxes). This increase in value is called a capital gain. Now, prices in the stock market go up and down all the time, which is why some people prefer to hold onto their stocks over the long term. Generally, the stock market has gone up over time, though individual stocks can be risky and may lose value.
  2. Dividends: Companies sometimes reward their shareholders by sharing a portion of their profits through dividends, which are cash payments made to shareholders. Not all companies pay dividends, but many large, stable companies do. Dividends can be a reliable way to earn income on top of the capital gains you might make. If you reinvest those dividends back into your stock portfolio, you can benefit even more over time.

For a deeper dive into capital gains and dividends, you can check out resources from Investopedia on capital gains and Investopedia on dividends. These resources go into the pros and cons of each income type and what to consider.

Is Investing Safe?

There’s no such thing as a completely “safe” investment, but that doesn’t mean it’s a bad idea. The stock market has risks, and it’s normal for prices to fluctuate. In fact, that’s why people can make money from it. Here are a few ways to invest more safely:

  • Diversification: Diversifying, or spreading your money across a variety of investments, can reduce the risk of losing money. For example, if you invest only in one company and it struggles, you could lose a lot. But if you own a piece of many companies, your portfolio’s performance won’t depend on the fate of just one.
  • Long-term focus: Stock prices can swing widely in the short term. But over time, the stock market has historically trended upward. Staying invested for the long haul helps you benefit from overall growth rather than short-term ups and downs.
  • Invest only what you can afford to leave alone: Only invest money you won’t need for a few years. That way, if there’s a downturn, you don’t feel pressured to sell and lock in a loss.

For more insights on reducing risk, NerdWallet has articles on safe investing strategies, and Investopedia has in-depth resources on risk management.

How to Find Money for Investing

It might feel like there’s nothing left to invest at the end of the month. That’s where tracking your spending and creating a spending plan comes in. When you know where your money is going, it’s easier to see opportunities to cut back and free up some cash for investing.

  1. Track Your Spending: Start by tracking every dollar you spend for a month. This helps you see exactly where your money is going and where you might be able to save. You can do this with an app, a spreadsheet, or even just pen and paper.
  2. Create a Spending Plan: Once you know your spending habits, you can make a plan. A spending plan is like a budget but focuses on aligning your spending with your goals. For example, if you find you’re spending a lot on eating out, you could set a limit and redirect the extra money toward investments.

If you’re interested in learning more about tracking spending and creating a budget, NerdWallet has some fantastic resources. And Investopedia’s guide to budgeting explains how a spending plan can help you achieve your financial goals.

Why Investing Isn’t a Get-Rich-Quick Scheme

Investing won’t make you rich overnight, and it’s not meant to. The stock market’s real power lies in its ability to help you build wealth over time. By investing regularly, even small amounts, you’re setting yourself up for future financial resilience. When unexpected expenses pop up—a car repair, a medical bill, or even a job loss—having an investment cushion can make all the difference.

If you’re looking for more information on the power of compound interest and long-term investing, The Motley Fool’s guide to investing basics provides a solid foundation. Compound interest essentially means your earnings start to earn more money, which can really add up over the years.

To summarize, investing is a long-term approach to building financial resilience. It may feel intimidating at first, but starting with small steps and consistent contributions can help you build a more stable future, even if it doesn’t feel like it’s possible today. Remember, this isn’t about getting rich quickly—it’s about building a solid foundation over time. And that is something that can truly benefit everyone, even when day-to-day expenses feel like a struggle.

Onward and upward,

Chris Peterson, AFC®
Founder and CEO, Penny Forward


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