What Are The Benefits of Investing In Stocks?
Why are stocks such good investments? The number one benefit is that stocks have been the best performing investments over time! Owning stocks also allows you to own successful companies. And when these companies prosper, so do you!
With the right skill-set and knowledge, there is no better way to invest to grow your money long-term! And, the earlier an individual begins investing in stocks…the better! Investing early gives your money more time to grow.
And, with compound interest, you can earn even more on your investments. Compound interest is interest earned on the principal and also on your interest from the previous periods! So, you are actually earning interest on interest! This is in your favor when investing! Albert Einstein called compound interest “the most powerful force in the universe.”
Historical stock market data proves that stocks have outperformed every other investment! Even though stocks fluctuate up and down they continue to earn more than alternative investments over the long-term. Since 1928 the average return for the S&P 500 has been approximately 10%. And, many “do-it-yourself” investors have been able to beat the S&P 500’s return and earn even higher returns than this!
Historically, the returns on stocks have been greater than Bonds, U.S. Treasuries, and Cash Investments. Individuals often look at bonds and cash investments as being safe and risk-free. However, cash is not a good investment. Cash is an awful long-term investment. Moreover, bonds, contrary to popular belief, do carry risk. Keep in mind also that short-term investments offer investors very low or even negative returns! Its’ much better to own stock in a company. The investor’s greatest risk is not investing their money in stocks, long-term, for the highest, returns!
CD’s and Money Market Accounts are two examples of cash investments. After deducting inflation and taxes, Bonds, U.S. Treasuries, and Cash have, at times, returned nothing to the investor! Investors need to be aware that they can indeed lose money from the different types of cash investments!
The smart investor chooses stocks, instead of the above investment vehicles, and hold onto their stocks for the long-term. A wise investor, after careful research, would want to hold onto their stocks for a “minimum” of 5-10 years. Quoting Warren Buffet, the greatest investor of all time, regarding stocks: “The perfect holding period is forever.”
Stocks also offer the investor the benefit of owning successful companies! When individuals purchase shares in a company they own a “part” of that company. The percentage they own is dependent on the number of shares they purchase in the company.
Many of the wealthy people today got that way by investing in stocks! They knew they could grow their wealth by owning part, or all of, a business. And, in essence, that is what an investor is doing when they purchase shares in a company. You are essentially becoming a business owner! Consequently, if the company you invest in has great earnings you, the investor, also get to share in these earnings!
Once you have purchased your shares, you will benefit in one of two ways: Capital Appreciation and Dividends. Capital appreciation is an increase in the value of your stock. You are rewarded when you purchase your stocks at a “low” price and, then, later on, sell these shares at a “higher” price. Your goal should be to: “Buy Low and Sell High.”
Another benefit stocks offer are dividends. You want to choose a “quality” company that pays good dividends! You want to make sure this company has a “consistent” and long history of paying out and also raising their dividends. Investors like to see 5-10 years of consistently higher dividends. Moreover, investors do not like to see their dividends lowered, or omitted altogether.
In conclusion, investing in stocks offers investors the highest returns over any other investment vehicles! Stocks also let you own successful companies. You can definitely build up wealth long-term by investing in good quality stocks that pay out good dividends. Ideally, you should start investing in stocks at a young age. However, its’ never too late to start. Bottom Line: You need to invest in stocks! Stocks are great investments and, the wise investor, in order to maximize their wealth, invests in stocks.