The American stock market is the most significant globally, accounting for two-thirds of the global market by value.
Many of the world’s leading corporations are headquartered in the U.S., including oil giants like ExxonMobil and Chevron, as well as tech giants such as Apple and Alphabet, the parent company of Google.
Household names like Pfizer, JPMorgan, Procter & Gamble, Nvidia, Meta, Amazon, Tesla, and Microsoft are also based in the world’s largest economy.
According to the MSCI World Index, the U.S. accounts for 69% of the global stock market’s total value. This proportion remains relatively stable, though it fluctuates slightly over time. American stocks have consistently been more valuable than their international counterparts due to their superior performance compared to global markets. In simpler terms, U.S. company earnings continue to impress investors, who are willing to pay more for more profitable businesses.
Although recent years have been challenging for U.S. small caps, they have a well-established pattern of recovering from extended periods of poor or negative performance with above-average long-term returns. Historically, low-return markets have followed positive 3-year returns 99 percent of the time. The Russell 2000’s subsequent average annualized 3-year performance from December 31, 1983, to March 31, 2024, shows 3-year annualized return ranges of less than 3 percent.
Amplify Your Earning Capacity
Capital gains and dividends from the American stock market can supplement your income. Dividends are periodic payments made by a company to its shareholders, typically derived from reserves or profits. Capital gains refer to the profit made when you sell stocks for more money than you originally paid. Over time, both capital gains and dividends can increase your assets and cash flow. Additionally, you can reinvest dividends and capital gains to purchase additional shares and enhance returns.
Stock trading can also contribute to wealth accumulation. Over the long term, stocks tend to provide higher returns compared to other investment options such as bonds and savings accounts. Compound interest further benefits stocks, meaning you will gradually earn more from your investment as the income generated is reinvested.
Boost Your Knowledge in Personal Finance
Investing in stocks can help you develop valuable habits and skills. Making informed decisions about the companies and markets you wish to invest in is crucial in stock trading. It requires perseverance, discipline, and fortitude, qualities that are beneficial in many areas of life, including education, career, and personal finances.
Diversification Options
Stock trading offers opportunities to diversify your income and portfolio. You can diversify by investing in dividends, which are regular payments from companies, or capital gains, which are profits from selling stocks at higher prices than originally purchased. Diversifying your portfolio helps reduce risk and increase potential returns by allocating capital among various types of investments, such as stocks from different industries, countries, or regions.
The American equity market is denominated in dollars, which are widely regarded as the global reserve currency. This status helps mitigate the risks associated with volatile currencies like the naira. Younger individuals also have more time for investments and financial growth, allowing them to recover from any mistakes or losses while trading stocks. Additionally, a strong tech background can make stock trading more accessible.
Your investment strategy should align with your life goals. For instance, if you plan to relocate overseas or pursue education abroad, your investments should support these plans. If you wish to invest in gold or commodity exchange-traded funds (ETFs), it is crucial to consider this separately from your diversification objectives. Timing the market, or determining the ideal moment to invest, is challenging, even for experts. While the U.S. market is approaching record highs, there is no guarantee that prices will normalize soon. Rather than investing large sums all at once, a safer approach is to invest gradually on a weekly or monthly basis and be prepared to hold investments for the long term. If you are new to investing, more information on this strategy is available.
