Friday, 23 January 2015 09:37

Why invest in stocks?

Many times, people asked if it is wise to put their money in a bank that yield the most interest. Often not, a bank offers meagre interest that is worth putting your money in and one should always consider investing as part of their financial planning and wealth creation.


Despite all the latest turmoil of the stock market during the Great Recession of 2008, as we now call it, investing in stocks remains the premier means to investing.

The stock market tends to have volatile performances in times of any economic uncertainties, but that is why it is a good barometer for the economy. The stock market in general will always deliver long-term returns, just as the economy eventually advances after trying times.

No other investment vehicles are as closely and directly related to the many aspects of an economy as the stock market. As risky as it may seem, the stock market is still arguably the most rewarding investment place.

Two critical elements are worth considering in answering “why invest in stocks?”

Long-Term Capital Appreciation
Real wealth creation comes from growing investments not out of earning only fixed interests or dividends. For $1,000 invested in Berkshire Hathaway in 1964, the investment would have grown to $8 million in value today. Results on smaller scales compared to what Warren Buffett has consistently delivered are certainly achievable with other long-running corporate America stocks.

At around 15 percent annualized return, an investor who started with $1,000 elsewhere could also have become a millionaire after the same length of time. No bonds of any kind can reach such a level of growth as any price appreciation in bonds depends on the few single-digit changes in market interest rates.

Investment results from real-estate investing could on the other hand vary widely as no uniform market pricing mechanism exists, especially considering the transparency and efficiency of the stock market. When it comes to investment growth, the stock market delivers.

Short-Term Trading Advantage
Why should you invest in stocks?

Investing in stocks is often said as owning a piece of business.

On a fundamental level, it is very true.

Investors, institutional or retail, analyze companies in different sectors and industries in search for both value and growth stocks. Whenever investing is detached from the underlying business, it becomes the trading of mere ticker symbols.

However, having designed a solid, business-focused investment plan, it would be foolish not to take advantage of trading opportunities.

Trading has become increasingly convenient for investors at any level. Buying and selling stocks can be done with only a mouse click and in the comfort of one‘s home, while other investing such as bond trading is not nearly as accessible to average investors. Market volatility makes stock prices of even good businesses rise and fall on their way up.

Investors with an eye on trading allow themselves to generate higher returns. If an investment stays all the way in, it may produce only 15 percent. But if, from time to time, an investor tries to sell at near tops and then buying back at close to bottoms, such a trading element incorporated into investing may help turn a boring 15 percentage rate into an awesome 60 percent.

Buyer Beware
Though stock investing has, at times, clear cut advantages to other investment vehicles, there is still substantial risk if the investor doesn’t do his homework. One still needs to do their research and understand the value of the company they are buying into.

* On a side note, buyers can also do their own reading at financial website such as Forbes, BloombergFree Articles, CNBC to widen their knowledge of investing.