Forget Savings Accounts: The Stock Market Is Still the Best Wealth Builder, and This Is My Top Pick for 2026.

If you're a working-age adult who's old enough to be thinking about how you're going to fund your retirement, you've likely come to a realization I reached a while back: Building a meaningfully sized nest egg isn't easy if you're limiting yourself to banks' basic savings accounts, which pay you next to nothing for your idle cash.

You can fare somewhat better if you shop around among online banks and brokerage houses, where the best money market yields on offer are currently in the ballpark of 4%. Even so, these rates don't always outpace inflation. To actually get ahead, you'll need your nest egg to consistently and significantly outgrow inflation on its own. And the only way for most people to do that is by investing in the stock market, even though that's guaranteed to be an up-and-down affair.

To be clear, of course, this is not to suggest that you should put all your money in the stock market. For funds you might need in the near term -- an emergency fund, for example, or next semester's college tuition bill for your child -- the risks that a short-term market decline could sap your portfolio's value just when you need to tap it may outweigh the potential for gains. Savings and money market accounts have their place in a well-rounded financial plan, too.

With all that in mind, here's what anyone not familiar with the stock market needs to know.

What is the stock market?

Though it would be easy to assume that the overall market is a random, chaotic mess of speculation, it's not. Every share of stock represents a tiny piece of ownership in a publicly traded company like Coca-Cola, Apple, or Walmart. When you hold a stock, you're essentially participating in the value of that company's results.

So why all the volatility? That's a result of the constant buying and selling of the U.S. market's roughly 6,000 exchange-listed tickers. Since investors' opinions of what every stock is worth are forever changing, so too are stocks' prices; the underlying companies' fiscal situations rarely change as dramatically as their stocks' prices do.

Image source: Getty Images.

On that note, new investors need to embrace one critical reality. As legendary value investor Benjamin Graham put it, "In the short run, the stock market is a voting machine. Yet, in the long run, it is a weighing machine." That just means that while emotions like fear and greed can push and pull stock prices too far in either direction in the short run, given enough time, a company's stock price will, broadly speaking, reflect its sales and profits.

Said more plainly to newcomers, remaining patient can really pay off. The trick is resisting the temptation to constantly buy or sell based on short-term noise and volatility.

An easy answer to investors' chief challenge

I know that's easier said than done, particularly when you're new to investing and every shift in your portfolio feels like it requires you to take action. It doesn't.

If you feel like this could be a potential problem for you, though -- or if you just don't feel comfortable picking a portfolio of individual stocks -- there's a solution. You can invest in a simple index fund like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) or the Vanguard S&P 500 ETF (NYSEMKT: VOO). These two exchange-traded funds, which are bought and sold just like any other ticker, are built to mirror the performance of the S&P 500 (SNPINDEX: ^GSPC) index. Consisting of 500 of the stock market's largest companies, the S&P 500's components account for over 80% of the market's total value; in many respects, it's a proxy for the entire market.

And this is important.

A good low-cost index fund lets you participate in the stock market's long-term growth without having to take on the hassle of finding and monitoring individual positions, or the risk of putting too much of your nest egg into a stock that turns out to be a poor choice. Although past performance is no guarantee of future results, and some years are decidedly better than others, the S&P 500's long-term average annual return is right around 10%, including reinvested dividends. And with a typical annualized return in that ballpark, the stock market can build real wealth for you that savings accounts just can't.

For perspective, every dollar earning an average annual gain of 10% will be worth $2.59 in 10 years, and $6.73 in 20 years. If you can leave it alone for 30 years, though -- and really give compound growth the time it needs to build upon previous gains -- that $1 invested in the S&P 500 will have grown to $17.45.

Ironically, the harder you try to beat the market, the less likely you are to do so. Standard & Poor's reports that most conventional, actively managed mutual funds available to investors in the United States underperform their benchmark indexes. Given that even the professionals are rarely able to do it, your best statistical bet is to not even attempt to outperform the S&P 500.

One individual, foundational pick

But you still want to try your hand with individual stocks? It certainly keeps things interesting by at least giving you a shot at outperforming the market. If nothing else, choosing and monitoring stocks can be educational.

If this is what you've got in mind, might I recommend something (very) familiar, like Google parent Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)?

Yes, it's one of those volatile technology names that's waist-deep in the unpredictable waters of artificial intelligence, and that has left investors feeling uncertain about what's next.

Except that its future isn't actually that uncertain. Although Alphabet is a high-profile name within the AI industry, over half of its revenue still comes from search-based advertising via Google. And after adding its other non-AI businesses to the mix (like YouTube, Android, Google Play, and subscription-based access to Google-branded services), this figure climbs to nearly 80% of the company's revenue.

In this vein, data from Statcounter indicates Google's search engine still handles nearly 90% of all worldwide web searches, while its Android is the world's most-used operating system, installed on 69% of the planet's mobile devices.

Connect the dots. Regardless of what the future holds for the artificial intelligence business, as long as the internet exists, Alphabet will be well positioned to thrive.

James Brumley has positions in Alphabet and Coca-Cola. The Motley Fool has positions in and recommends Alphabet, Apple, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has a disclosure policy.