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12 Simple Reasons Why Wealthy People Love Buying Stocks So Much

Discover how stocks help the rich stay ahead of the game financially.

By Rachel Cribby

Edited by Michael Kurko

Updated Oct. 22, 2024

If you're familiar with investing concepts, then you know that stocks aren't exactly considered to be the most reliable option if you're looking for short-term growth.

That's because, unlike bonds, stocks don't offer any guarantee of investment returns. Either the company you're investing in does well, and you profit, or it doesn't.

However, the stock market has shown steady growth over decades due to a diversity of investments. In fact, the majority of stock owners are higher-income Americans.

There are many reasons why those with capital enjoy taking their chance on the stock market, and here are some of the most important ones to help you build wealth.

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Stocks create passive income

The wealthy know that investing in stocks is a great way to generate passive income for themselves (i.e., income that takes no or minimal work to maintain).

In practical terms, this would make money earned from dividends passive income, though the IRS may tax dividends as ordinary income.

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It's not good to just leave cash sitting around

Let's start with the most obvious — you have to do something with your money. Those who have money understand there's no point letting wealth sit in a bank account when it could be accumulating interest through stock investment.

While it's good to have an emergency fund (and the amount that everyone wants will depend on personal comfort), hoarding too much cash in your bank account can actually prevent you from accumulating wealth.

Stocks pay better than hard work

Did you know that many of the world's richest people — including the ultra-wealthy Jeff Bezos — take home a relatively modest salary? Instead, the vast majority of their wealth comes from owning a portion of an ultra-successful company.

It could be argued that the best way to get rich is to create a successful company. The second best way is to own shares in somebody else's successful company. The worst way is to work a day job — though this is a necessity for most of us.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Investing is easy when it's a way of life

The data is staggering: The wealthiest 10% of people in America own almost 90% of all stocks. There are several reasons for this, including the fact that entry into the stock market comes with a price.

However, another reason wealthier people gravitate toward the stock market is that they have knowledge that's been passed down through generations.

Extra cash flow means a higher quality of life

The average American makes around $60,580 per year. When you consider the average house costs just under half a million dollars, it's easy to see why many people feel stretched thin.

Add in the constant fluctuation of gas prices, and it's no wonder that so many people turn to the stock market to make some extra cash.

Investing is a way to show your business passions

For people who have extra cash to throw around, choosing which companies to invest in is a great way to establish themselves as a fan of certain companies and put their money where their mouth is.

Usually, this means showing your passion for a certain company or product, but for some investors, it's the passion of trading itself.

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Earnings generate more earnings

Wealthy investors make a lot of money from compounding interest because they can afford to hold their investments for a long time.

Compounding is one of the most important concepts in investing, and the wealthy know it well. When you invest, you earn interest. Compounding is the simple concept of your interest earning interest (and then that interest earning interest, etc).

The wealthy understand which stocks have a good track record

While there are just as many different approaches to investing in the stock market as there are people, those with a solid interest in the undertaking understand which stocks to pour their time and energy into.

Those who recommend stocks likely haven't been heartbroken by their stock investments — at least not very often. You can follow in their footsteps by keeping track of market analysis and choosing stocks that align with your comfort level.

Index funds, like one that tracks the S&P 500, are also a great way to help make investing easier.

Stock investments can lead to a tax break

Investing in stocks as an action in and of itself doesn't lend itself to a tax break, but there are certain situations where it might.

For example, investors have the power to deduct any investment losses. However, you will actually have to have sold your stock if you want to claim a deduction.

There are also tax-advantaged accounts, such as individual retirement accounts (IRAs) and 401(k)s, that can help you build wealth over the long term.

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This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 3.80% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.

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SoFi has no account fees⁵ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> or overdraft fees⁶ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A.  The 30-Day Evaluation Period refers to the "Start Date" and "End Date" set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY.  Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $3 million on deposits is available through a seamless network of participating banks.⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>. Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.

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Stocks can offer protection from inflation

The word "inflation" has been thrown around a lot lately. Investors have been thinking of inflation quite a bit, too, which is why they've been putting some time into setting up what is known as "inflation hedges."

Inflation hedges refer to historically steady stocks that are seen as a "protection" against inflation. Wealthy investors use inflation hedges to weather the storm by keeping their portfolio worth more steady and diversifying it at the same time.

Capital appreciation makes them rich(er)

Capital appreciation refers to a stock's share increasing in price from its original price. It's an investor's best friend, and wealthy investors don't ignore the power of patiently waiting for several stocks to appreciate.

When stocks are sold at a gain, they result in a capital gain, which is taxable. However, if you put off selling for as long as possible, you'll also delay those taxes. Some investors can delay taxes for decades or even generations.

The wealthy are less vulnerable to bad investments

We're all capable of making bad investments. However, while a bad investment can make or break an average earner's net worth, it's less of a concern for those already sitting on cash.

While there are things we can all do to avoid bad investments and wasting money — like diversifying our portfolios — none of us has a crystal ball that can offer us complete protection.

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Bottom line

While the best time to start investing in the stock market is when you're young, the next best time is right now.

We don't all have the same advantages as wealthy investors, but that doesn't mean we can't make money with the stock market. It's not a bad time to glance over at what your wealthy peers are doing while you're at it.

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