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3 Reasons Why You Should Invest in Stocks

Most financial planners agree there are seven levels of wealth. Hiding in plain sight in those levels are three great reasons to invest in stocks.


When we think about why we invest in stocks, it’s easy to fall back on one answer: profit. But just thinking about your net worth as a set of numbers on a screen or on a statement can misalign your investing style with your goals. Most investors would be better served thinking of their account balances in terms of how close they are to reaching their investing goals or achieving a higher level of wealth.

The 7 Levels of Wealth

Ask yourself, “How much money do I need to be happy?” Everyone’s answer will be different. But according to a study by Angus Deaton, the 2015 Nobel laureate in economics, he reported that the correlation between emotional well-being and annual income tops out at $75,000 for the average citizen of the U.S.—as of 2009. At that time, $75,000 was more than double the U.S. annual median income. Today, the annual median income in the U.S. is $44,225, so all things being equal, the happiness quotient should be about $88,450.

But those numbers are sort of “pie in the sky.” If you asked me the question, I’d say $5 million. But I have friends who have relatively low-paying jobs, are pretty good financial managers, and they’d probably say $1 million.


It’s all relative. But what is true is that many money experts agree that there are actually seven levels of wealth, and you can ascend them until you reach the level that makes you the happiest.

Growing your earning power is the key to climbing the first four levels, but if you want to reach level five, six or seven you’ll probably have to invest. It just so happens that those last three levels of wealth are also three very important reasons to invest in stocks.

Keep in mind that the more levels you climb, the more autonomy you’ll have, and that seems to be associated with financial happiness.

Here are the seven levels:

1. Dependence. This would be the level for children, dependent on their parents. However, it also includes folks who are medically dependent on others, or even older people who have become financially dependent upon their children. This is not a happy level.

2. Survival. You can just about make ends meet at this level. You can pay your bills, but can’t save. We’ve all been at this level in our first jobs. But some folks remain here all their lives, due to unexpected hardships or bad financial management. People who like the flash—fancy cars or houses, with no substance (income and assets) to afford them—often live their lives this way. A very bad idea! Millionaires have learned to always live below, not above, their means.

3. Stability. Many folks are happy at this level—able to cover their expenses and save a bit. They generally have tucked away at least six months’ worth of living expenses in an emergency fund; they keep debt at a reasonable level that they can afford. And money stress has begun to ease.

4. Security. This is where the growing of wealth begins. The stable folks from the previous level begin investing, using a carefully constructed investing plan based on their long-term goals and risk profile. You’re getting pretty happy at this level.

Unless you have an incredibly high-paying job and low cost of living, you are unlikely to be able to save your way past level four. There are some notable exceptions, like the Financial Independence Retire Early (FIRE) movement, which has become increasingly popular among millennials. But for most of us, the FIRE window is closed, and we’ll need to compound our earnings by investing in stocks, real estate, or other appreciating assets to reach higher levels.

It just so happens that each of the next three levels, Independence, Freedom and Abundance, are also great reasons to invest in stocks all on their own.

5. Independence. Here, you’ve been investing for a while and have accumulated a nice portfolio that has created an income that can cover your living expenses for the rest of your life. You can retire, if you want to do so. At last!

6. Freedom. Now, you have accumulated enough wealth and income to put you to the next level—maybe a more luxurious lifestyle, world travel, providing education for your grandchildren, or any number of exciting ventures. For most of us, this level of wealth is but a dream. But it can be yours if you want it.

7. Abundance. Very few people reach this level. It requires luck, determination, discipline, and smart investing. There are some 720 billionaires in the U.S., and 2,700 around the world. Most of them would be at this level. They have more money than they will ever need. This is the level where these lucky folks begin to contemplate their legacy and ensure that their heirs keep up the good work and their good works!

Bottom line, it’s up to you to decide which level of wealth is your personal happy place. And then create a plan to reach it.

Investing in Stocks: The Key to Real Wealth

The biggest key to reaching these successive levels of wealth, as you may have noticed, involves investing. It’s great to save but if you don’t put those dollars in a well-thought-out investing plan, you will never accumulate real wealth. Investing creates passive income that compounds.

There are two rules to follow here to reach your maximum wealth:

  • Start investing early. In this case, it is true that “the early bird gets the worm!”
  • Don’t stop investing!

*This post has been partially excerpted from the article “The ‘Millionaire Mindset': How to Think, Live and Invest for Success” in the latest issue of Cabot Money Club Magazine. To learn more about how to adopt a “Millionaire Mindset,” and to get access to the full back catalogue of issues, subscribe today.