4 min read

The US Stock Market as a (Secret) Wealth Generation Machine

Generating wealth has, more or less, followed the same process for years. Invest in real estate, take out life insurance, start a retirement fund, or add to a savings account. Same old story.

Fast forward to 2021. Now a global phenomenon, new tech such as mobile-first trading apps and platforms tailored to the young investor have opened the gateway to a secret wealth generation machine – the stock market.

What makes it a ‘secret’? Traditionally, it was savvy investors and traders who had access to exchanges that were able to buy and sell stocks. Or rather, these were the people who had successfully mastered the market cycle. To the everyman (and woman), this unknown landscape could have been pretty intimidating. The rise of tech has mitigated all of that, giving individuals the ability to invest at the click of a button. The ‘secret’ is…it’s more accessible than you think.

These new platforms have significantly lowered barriers to entry, making the US stock market the cheapest wealth generation tool in history. How?

Well, for one, compounding interest in the stock market versus other investments has the potential to create exceptional returns. This, paired with ultra-low fees and no defined requirements for a minimum investment, has meant investors are well placed to take advantage of what the markets have to offer.

Let’s take the S&P 500 as an example, which has returned between 9-10% on average per year for the last 40 years. Say you invested $10,000 ten years ago in an index that tracks the S&P 500, it would be worth approximately $29,000 today.

Thanks to Exchange Traded Funds (ETFs), investors can achieve this through a diversified portfolio with a single asset. Investors can choose to take a passive approach to investing by opting to invest in ETFs that mimic the performance of broad based indices like the S&P 500 or Nasdaq 100. Alternatively, they can play a more active role in their investment strategy, without having to worry about buying and selling of stocks, through ETFs like those managed by Ark Invest, Global X or iShares, which offer options based on themes like Innovation, FinTech and Robotics in a single underlying security.

Moreover, we have started seeing more direct listings with the emergence of Special Purpose Acquisition Companies (SPACs), providing further access to new kinds of investment opportunities in the markets to create wealth. While not all SPACs are created equal, and all of them need careful consideration regarding the underlying target companies, they are paving the way towards a secular trend that is retail investing. The general theme of taking companies public via SPACs and allowing retail investors the opportunity to buy into a company is relieving the stranglehold investment banks previously had on IPOs. In some cases, like Deliveroo, companies going public are even granting employees and retail investors the right to participate in their IPO which was previously unheard of.

In addition, a larger asset base allows investors to build and acquire investments across other asset classes. For example, an investor can easily borrow against $1 million in stock to fund a deposit on a house. Both asset values across this diversified portfolio should, theoretically, grow over time.

But, what about volatility? Stability and peace of mind is not something the stock market promises to offer. Despite all the ups and downs in the market and all those terrible gut-wrenching market cycles, it may be hard to hold on to that $10,000, especially for new stock market investors. This is where financial literacy comes into play – understanding the concepts behind volatility and compounding interest in addition to long-term investment goals and risk appetite can help investors to stay calm and avoid reacting to the market emotionally.

When we set out to build baraka, we didn’t just want to make young regional investors aware of these opportunities…we wanted to make sure they had the tools they needed to successfully seize them. Daily financial news in a tone you understand, about regional and international market movement, a knowledge hub that breaks down those complex terms, and soon, the trading platform.

Maybe you never really understood the value of investing, maybe you just didn’t have the right platform to access these opportunities or maybe you just thought there was a secret you missed out on.

Now what?

Feras Jalbout
4 min read