Investing is the key to building long-term wealth and meeting big financial goals such as retirement. But 39% of adults say they have no money invested in the stock market, according to a new survey from Bankrate that polled more than 2,500 people.
Two of the main issues holding them back: a lack of resources and of knowledge. The first holds back 56% of people who don't invest and the second 32%. "People who aren't investing predominantly say it's because they don't have the money available to invest, or they don't understand stocks," says Greg McBride, chief financial analyst for Bankrate.
Suspicions about the fairness of the system don't help, either. When asked whether they believe the market is "rigged against individual investors," more than half of all people surveyed agreed.
The results of Bankrate's survey come after January's so-called "meme stocks" market frenzy, during which Reddit users and other individual investors bid up the prices of companies that financial institutions were betting against, like GameStop. The appearance of a battle between retail traders and big investors probably didn't help bolster confidence.
Still, only 13% of noninvestors said that sentiment is keeping them from getting started in the market. A lot of people who question the system participate in it anyway. "It seems that that perception rises among people that are already invested, more so than that notion precedes actual investing in the market," McBride says.
Here's how to overcome knowledge and financial barriers and start investing to build long-term wealth, according to experts.
Saving is key for short-term goals and to keep money readily accessible in case of an emergency. "What savings accounts are not good for is building long-term wealth," Neal Solomon, managing director of WealthPro LLC in Gloversville, New York, told Grow in September.
But when you park your money in a regular bank account, it diminishes in value over time due to inflation. That's not great for long-term goals like retirement. "Over long periods of time, you're not going to maintain the value of your money, much less grow it," McBride explains.
In order to grow your nest egg and build wealth, experts recommend investing in a well-diversified portfolio and staying put. One way to do that is to put your money in an index fund that tracks the S&P 500. In fact, legendary investor Warren Buffett says for most people, that's the best investment strategy.
The stats back up Buffett's claim. From 1965 through 2020, the S&P 500 produced a 10% annualized gain, for an overall gain of more than 23,000%.
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"Investing in the market should be the bedrock of retirement savings for the majority of workers, and especially for younger workers," says McBride.
Thanks to the power of compounding interest, even if you start by investing small sums of money, you can grow your wealth exponentially. And the earlier you start, the more easily you can reach your goal.
The best thing you can do is to "adopt a long-term view," McBride says. "Time is your greatest ally."
It's also less expensive and easier to invest in the stock market than ever before. "Without a doubt, the markets have never been more accessible to the individual investor, at a lower cost and with lower minimum investments than they are now," says McBride.
Major online brokerage accounts no longer charge commissions, and the cost of mutual funds and exchange-traded funds is just a few dollars for every $10,000 invested.
Investing doesn't have to be complicated, says McBride. "A consistent long-term successful investment strategy is to buy a low-cost total market index fund or a target retirement fund that automatically reallocates as you get closer to retirement."
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