Based on Fidelity Investments Retirement Savings
Assessment, there are some younger people appear to be avoiding stocks. Out of
ten millennials, born 1981-1992, four of them tend to invest more conservatively
than they should. Here are the reasons why you should invest in stocks instead
of other options:
1) Higher
rate of return.
Over the past 60 years in America, with a historical
return of ~8-10% a year, stocks market has performed better compared to 2-4%
for real estate, which is close to the average inflation rate by year.
Besides real estate, stocks have also outperformed bonds.
The table below compares average annual stock market return to current bond and
online savings account rates (in U.S.), as of March 2019.
Source: nerdwallet.com
2) More liquid.
Stock is liquid. You can easily sell your stock
holdings when you need immediate cash. If you need to cash out of real estate
you could potentially take out a home equity line of credit, but is costly and
takes at least a month.
3) Lower
transaction costs.
Online transaction costs are under $10 a trade no
matter how much you have to buy or sell (In Malaysia, RM7-0.1% a trade). The
real estate industry in U.S. is still an oligopoly which still fixes
commissions at a ridiculously high level of 5-6% (In Malaysia, 3% maximum).
4) Less
work.
Real estate takes constant managing due to
maintenance, conflicts with neighbours, and tenant rotation. Stocks can
literally be left alone forever and pay out dividends to investors.
5) More
variety.
An appropriate mix of investments should be based on a
person's time horizon, financial situation, and tolerance for risk. With stocks
you can not only invest in different countries, you can also invest in various
sectors. A well-diversified stock portfolio could very well be less volatile
than a property portfolio.
6) Invest
in what you use.
If you are a huge fan of Apple products, McDonald’s
cheeseburgers, and Lululemon yoga pants, you can simply buy AAPL, MCD, and
LULU. It’s a great feeling to not only use the products you invest in, but make
money off your investments.
7) Tax
benefits.
Long term capital gains and dividend income are taxed
at lower rates (15% and 20%) in the U.S. than the top four W2 income rates
(28%, 33%, 35%, 39.6%). In Malaysia, capital gains are not taxable whereas for
dividends income, single-tier system is adopted. Dividends paid would be tax
exempt in the hands of its shareholders.
8) Hedging
is easier.
With stocks, you can short stocks or buy inverse ETFs
to protect your portfolio from downside risks.
Reference：
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