Let’s cut to the chase—investing in stocks has its risks and it is definitely a little frightening in the beginning especially when you’re totally new to the game. It’s normal to have some doubts, considering the fact that you’re about to place your hard-earned money on something that isn’t consistent and a hundred percent certain. However, this shouldn’t be a reason to hold yourself back from learning and diving into the waters, or what we can refer to as the stock market.
Investopedia defines the stock market as a “collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place.“ Basically, these are companies that offer pieces of themselves to willing investors. This piece is called a share and it sells for a certain amount based on the company’s value and earnings.
These investments, in return, help the company earn money, move forward, and become more successful. This exposes them to potential buyers, creating a more highly profitable image that results in an increase in demand for stocks. When the demand increases, so does the price and the value of the stocks other shareholders already own. (Good for them!)
On the downside, when the company becomes less profitable, investors–some who chicken out early and those who are only “in it” for a short period of time–sell their stocks to avoid losing profit due to its declining value as the demand decreases. That, and the small possibility of the company going bankrupt while you’ve still got your money in their hands are the risks you are willing to take when investing in stocks.
It sounds pretty self-explanatory, however, there are great online courses that cover all you need to know about investing in the stock market. If you just need to be reminded of how engaging in the stock market has more profits than losses or if you simply need a little nudge to take action, we’re here to provide you a few of the many reasons why you should start investing in stocks.
Although the stock market has its ups and downs, it is still considered to be one of the best and safest ways to grow your money in the long run. Remember, investing in stocks is not a get-rich-quick scheme. According to Medium’s recently published article, How Much Money Can You Make Investing In Stocks, “stocks generally return 7–10% per year over long periods of time.”
Historically, investors have reported having a much higher success rate when holding on to stocks for 15-30 years or even more, which is basically the main reason why people invest in stocks early. So if you have a long-term goal such as retirement and you’ve got time in your hands to be patient in your investments, it won’t hurt to place your money in the stock market. Matter of fact, it could possibly be one of the best decisions you’ll ever make in your life!
Now, this could either be a good thing or a bad thing, however, for those who feel uneasy about not being able to actually “pull out” their money from the market should not worry. Since stocks are considered to be liquid assets, you can convert it into cash relatively quickly when you need it, and in just a few clicks.
Say you had a couple of sources of income from having a full-time job and owning a home-grown business. If both of these were to suddenly go the opposite way and you lose your job as well as your home-grown business, what’s your contingency plan?
Investing in stocks is a way to diversify, meaning you have different ways of earning money. This lessens the risk of financial trouble when unfortunate circumstances arise.
A dividend is “a payment made by a corporation to its shareholders,” as defined in Dividend.com—kind of like a thank-you incentive for being an investor. Before buying a share of the company, they will let you know upfront how much the dividend rate is going to be when you are able to hold on to your stock for a long period of time, which is usually the case when investing in stocks. This is often given quarterly or four times a year, however, there are instances where a company pays the dividend every month.
When you’ve got cash just sitting in your wallet or at home, it very slowly loses its value due to the inevitable annual inflation rate that increases the prices of products and services over time. To put it simply, what could buy you a high-end laptop today could possibly only buy you a low-cost smartphone in 20-something years. This means you could have thousands of dollars in your pocket at this very moment, but it wouldn’t be worth the same years from now.
When you invest in stocks, not only are you saving your money from losing its value–you’re also growing it.
Once you buy stocks from a company, you are already considered as a part-owner. This is a great advantage for those who invest in a company they are passionate about since, as a shareholder, you legally have the right to take part in their decision-making processes. This means you can vote on decisions as big as who will be appointed as the next board member and more. Awesome, right?
Apart from the ownership you automatically gain, immersing yourself in the stock market and investing in stocks open up many opportunities to learn. You will most likely receive annual reports that further provide information about the company and its state. Remember, you win some and you lose some depending on your timing, but it will all serve as a significant (and in some ways fun and thrilling) learning experience.
Investing in stocks is an emotional rollercoaster ride because you will get to observe how the market fluctuates over time. If you’re able to get through the highs and lows to stay long enough and increase your return, go for it. You are more than likely to become fortunate when you’re in it for the long-term.
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