The following is a guest post from Graham Clark at Moneystepper.com
Why do we invest? Presumably, we all invest money to obtain the best returns we can to improve our financial future. Effectively, this means that we are investing to earn money.
We invest in the stock market because we think it “pays well”. Investing in the stock market (assuming we can earn the market returns of the S&P 500 since 1970) can earn us 15.79%. Alternatively, holding money in cash returns approximately 5%.
Investing in the stock market is therefore the equivalent of working at a legal firm instead of McDonalds – the wages are better.
Hourly wage of investing
Let’s say you have $10,000 invested in the Vanguard S&P 500 (with an annual TER of 0.1%). Therefore, your average annual return, after costs, is equal to $1,569. How much work did this take? To set up your Vanguard account and buy the fund, and then to completely forget about it for the year, probably takes about one hour.
So, you are earning an hourly basic wage of $1,569 per hour. Not bad. Well done you!
Now, I’m going to give you the opportunity to earn another 60 cents per hour. Would you like to do that?
You probably wouldn’t. Moreover, you would probably report me to the authorities for exploiting my employees!! But, millions of people are doing this when they are trying to beat the market.
Can you beat the market?