Need Convincing? 10 Ways the Stock Market Can Help You Meet Your Financial Goals

After a bull market that lasted nearly 13 years, the bears are finally roaring. Stocks have tumbled this year as concerns about rising interest rates, inflation, and even a potential recession have combined to turn the economic picture sour.

There's no question this is a tough time for investors, but it's a mistake to think that you should bail on the stock market now. In fact, bear markets are often when fortunes are made, and the stock market is one of the best vehicles of long-term wealth creation.

Keep reading to see 10 ways the stock market can help you meet your long-term goals.

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Investing in the stock market is one of the best ways to save for retirement. In fact, many Americans are lucky enough to have employers that will help contribute to their 401(k) retirement fund, essentially giving them free money. Even if you don't get a match, you still get to deduct taxes for making a contribution, which means it's probably a good idea in the long run.

Retirement brokerage accounts also include traditional IRAs and Roth IRAs, which give you more flexibility to control the timing of your taxes as a retiree.

ALSO READ: What Is a 401(k) and How Do They Work?

If you have kids, you probably imagine them going off to college one day. Unfortunately, the cost of college has skyrocketed over the last generation so it's never too early to start saving to send your kids to their dream school.

There are a number of options for college savings accounts, including the 529, the most popular one. You'll generally have to invest in exchange-traded funds (ETFs) or mutual funds in a 529 as these are often managed accounts, but you can also choose a Coverdell education savings account if you'd prefer to pick some stocks.

Best of all, a college account enables you to benefit from tax-free gains as long as you spend it on an educational institution.

Another great thing about the stock market is you can also rely on it for a supplemental income stream as many retirees do. Owning a dividend stock is a great way to give yourself some extra discretionary income, and you might be surprised by how dividend stocks can pay off.

With a moderate 5% yield on a $100,000 portfolio, you'd collect $5,000. If the size of the portfolio were $1,000,000, then you'd get $50,000 in dividend income each year.

The good news about stock prices falling is that dividend yields tend to go up in such an environment, so it's a good time to buy dividend stocks.

ALSO READ: Best Dividend Stocks to Buy and Hold in 2022

The first major financial milestone most people reach in life is gathering money for a down payment on a home.

Banks generally like to see down payments of 20% or more to lend a mortgage, and the stock market can be a great tool for helping to grow this money.

There's no type of specialized account for a down payment. You'll have to save the money in a traditional brokerage account, meaning you'll owe taxes on it, but your money is still likely to appreciate as the S&P 500 has historically gained an average of 9% every year for more than 100 years.

You don't have to have a specific goal to put money in the stock market. Investing just knowing that your money will likely appreciate is a good enough reason.

And having extra money in your brokerage account can give you some financial peace of mind and extra cash if you want to spend on something like a big vacation or a kitchen remodel.

While most financial advisors recommend keeping your emergency fund in cash, if your stocks have gone up, there's no reason you can't use that for an emergency. In fact, it might be a better plan than depleting your cash emergency fund.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Putting money in the stock market is one of the best ways to grow your wealth over the long term.

While an average 9% annual return might not sound like that much, over a long enough time horizon, that can make almost anybody rich.

Over 10 years, for example, a 9% compound return will make $10,000 into roughly $24,000, but over a 30-year period, $10,000 turns into more than $130,000, showing that the best strategy in investing in the stock market is often to be patient.

ALSO READ: What Is Compound Interest?

While most investors may look to the stock market to grow their wealth, it also works to preserve wealth. For example, if you are retired and want to adopt a more conservative strategy, you might invest in low-risk stocks like consumer staples and utilities that pay dividends and are recession resistant.

For instance, Coca-Cola stock is actually up 10% this year, compared with a 16% decline in the S&P 500, while the Utilities Select Sector SPDR ETF is up 4%.

Even in a tough year, there are still ways to win in the stock market, especially if you're focused on wealth preservation.

Most Americans accumulate wealth through either the stock market or real estate, typically owning their own home.

Both are great tools for building wealth, but the problem with real estate is that it isn't liquid. If you own a home that has appreciated by, say, $500,000, that gain just exists on paper until you sell the home, which you won't want to do unless you want to move.

With stocks, on the other hand, you can get access to that money whenever you need it, much like you would with your own bank account. That's a key advantage to holding stocks, and it makes them a good way to diversify from real estate, especially if you already own your home.

ALSO READ: What Is Liquidity?

Though you might not think of the stock market as a good way to hedge inflation based on recent performance, in theory at least, stocks should see their values rise along with inflation.

That's because many of the businesses that reflect inflation are traded on the stock market and they have to raise their prices as costs go up. Companies in areas like energy and commodities, for example, have done particularly well in a high-inflation period as they've benefited from elevated prices for their products.

If you don't want to spend much mental energy on your stock portfolio, you can always make it easy on yourself and try passive investing, or putting your money into an index fund.

A low-cost index fund like the Vanguard S&P 500 ETF can give you an easy way to get exposure to the stock market with minimal effort. You'll have to pay just 0.01% of your holdings in the fund each year.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

If the recent pullback in the market seems scary, you have to remember that volatility is normal. Not every year will be an up year, and if the stock market just rose 9% every year like clockwork, everyone would be invested.

But the rewards come with that risk, and over a long enough time horizon, that risk becomes much lower as the economic cycles even out and stock returns are likely to match that historical 9% growth figure.

Whatever your finanical goals are, there are a lot of ways the stock market can help you meet them.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.