The stock market keeps going up and widening the wealth gap in America. So many people are living paycheck to paycheck that finding money to invest can be difficult. But, it is not impossible in this day and age to put something aside on a regular basis. With this thought in mind, what are the best investments on a budget?
The Problem with Investments in America
Both home ownership and ownership of stocks have declined since the Great Recession and have not recovered as expected. Financial Samurai looks at the percentages of Americans who own stocks or real estate.
Now that the economy is on fire, all Americans should be rejoicing in their wealth, right? Wrong! Only 52% of Americans own any stocks according to a 2019 Gallup poll and only about 63% of Americans own real estate according to the Census Bureau, down from a high of about 69% in 2004. Given these figures, the bull market has left a lot of people behind.
Back in 2007, 65 percent of adults owned stocks and today that number is 52 percent. Part of the reason is that many who got burned in the 2008 market crash have never re-entered the market. But, a greater factor is that small investors have been unable to take part in the steady appreciation of stocks over the last dozen years because they are just making ends meet. Our concern in this article is not the folks who have money and choose not to buy stocks (or real estate) but rather those who are living on a budget and are not investing.
While the stock market is an excellent place to grow wealth, the first place that Americans should and do invest is in their home. Unfortunately, home ownership took a hit with the Financial Collapse as well. More than 69 percent of Americans owned their home in 2007 and that number is below 64 percent today.
Investing in Your Home
Whenever we have written about starting to invest in the stock market, we have always mentioned home ownership as a greater priority. The Federal tax deduction for mortgage interest still makes home ownership a great investment. And, unlike trying to find money to invest in stocks, Americans are already paying for places to live. Getting out of the rental market and into home ownership is still one of the best investments on a budget.
The point of investing in stocks is that over the years and decades the US stock market outperforms other investments. The key for most people to take advantage of this fact is to choose investments for the long term and not to try to time the market. Dividend stocks that have been paying dividends for decades or even more than a century are good choices. And using dividend reinvestment plans allows you to reinvest dividends without paying commissions and let your money grow even when you cannot purchase more shares. The key to making the best investments on a budget is to use dollar cost averaging to put a set amount into investments every year, quarter, month, or paycheck.