The benefits of investing in stocks cannot be overemphasized they are more than its detriments. With stock investing, you can earn regularly, build your savings, and achieve future goals. Stock is a profitable investment that will earn you profit if you understand how to diversify your investments.
The stock market also adds more benefits to stock investing by selling stocks in units. It will cost you little but you can benefit more if you plan for the long-term.
What are the key benefits of investing in stocks?
When the thought or plan to establish a certain investment comes to mind. You begin to ask questions such as: What are the benefits and detriments of such investment? You would like to weigh both ends to know if to continue or decline from investing further. You will become more interested in knowing what payback to derive.
Every investment like a commodity or fixed deposit can be profitable but stocks give more potential returns. Although it may also feature some risk understanding the basics of stock and stock market could alleviate losses. So what are the benefits?
1. Potential returns on investment
Stocks have great potential to give huge returns on investment. This is very possible if you have a good knowledge of how to invest in stocks. Information is the key factor here especially when it comes to price fluctuation.
It is usually said that stocks are risky investments but this can only be true if you have zero understanding about it. The truth is if you conduct enough research and findings and invest in a reputable company you will reap your reward immensely.
It does not end there, as you will also accommodate other factors that will give your efforts a success. Such as your level of risk tolerance, ability to overcome market volatility, and taking a long-term strategy.
2. Build your savings
Investing in stock can build your savings through an increase in value which can lead to capital appreciation. An increase in value is when the price of a stock rises resulting from supply and demand.
The higher the demand the higher the price, an investor could make more money selling stock at this time. This will increase and build your savings.
An investor can also build savings through compounding if you reinvest your dividends to accumulate returns. Not only that, you stand a chance of gaining your principal fund and also gaining returns on your profits.
3. Right of part ownership
Investing in stock is one investment that gives the right to part ownership in a company. This right gives you the authority to become a shareholder and have a say in the company’s activities.
You will also have the right to claim the company’s assets if things fall apart. Ownership is one of the benefits of investing in stock because the little amount you invest can give you the right to own a property.
4. Opportunity to diversify your investments
Diversifying your stock is spreading your assets across industries, and geographical areas. This is an opportunity to curtail risk and earn more on your investment.
You can choose to buy stocks from different companies at a time and monitor their performance. Investing in stock gives you the benefit of earning more revenue if you also buy from other companies.
5. Suitable for long-term goals
If you want to benefit more from investing in stocks it is advisable to plan a long-term strategy. Due to its risky nature and constant price fluctuation, you may not gain much with a short-term strategy.
Every investment is risky as far as money is concerned but there is also a way of handling those risks. Therefore to manage the effect of risk in stocks it is best to invest for the long-term. A long-term strategy usually takes years to achieve but the purpose is to improve on your objectives.
6. Low capital start-up
Investing in stock is one of many investments that you can start with low capital by purchasing a single share of stocks. This means buying one unit, hence you have little amount at hand to start.
You do not need to wait until you have the money to purchase 100 units before you can start. You can use any amount from the price of one unit to start investing in stock. This becomes a benefit when compared to other investments like fixed deposits, real estate, and more.
7. Stocks can be converted to Liquid
There are times when you might decide to convert your stocks to liquid. For instance, during emergencies and when you have no available cash at hand.
Another instance is, when you may want to convert your stocks because stocks are performing well. This means you will have to time the market to know when the price of stocks will increase. You can do this easily with your brokerage account through a stock broker in the stock market.
Stocks are liquid assets that can be converted to cash within a short time. Unlike other investments like real estate and commodities that may take time to sell.
8. Provide regular earnings
Apart from dividends, investing in stock can provide regular savings to investors who use dollar cost averaging. This means investing a specific amount of money at intervals and doing it consecutively.
Even if the price of stocks rises with time you will be able to purchase stock at a relatively lower price. Then you will be enjoying the benefits of saving from the proceeds.
9. Price fluctuation
Another benefit of investing in stock is price fluctuation but this benefit goes to an expert who can predict price movements. You could be able to know when the price of stock drops and when it rises.
This is called buying opportunity, when stock price downturns you will then make purchases. When the price upturns you could also sell stocks.
10. Opportunity to reinvest
Investing in stock provides an opportunity for reinvestment. If the company pays a dividend, you can reinvest it by adding it to your capital. This way you gain through compounding and accumulated profits.
With time your money grows and increases in net worth, it is another long-term strategy. This is a great way of benefiting through investing in stock.
Should I invest in stocks?
If you are searching for an investment to commit your fund and in the process wondering if you should invest in stocks. Then know that the choice to invest or not invest in stock depends on three factors: your financial objectives, risk tolerance, and time horizon.
Financial objectives: what are your intentions for investment? Do you want to commit your funds to a project that will yield you income on retirement? Or you want to build wealth for legacy and maybe along the process sponsor other projects.
Risk tolerance: Access your ability or willingness to accept losses at any given time in the investment. Are you ready to perceive and not give up easily or are you going to quit once your expectations are fruitless? Remember stocks are risky assets that demand good knowledge of how to invest.
Time horizon: ask yourself if are you planning on long-term or short-term investment. Stock investment is suitable for long term. So if your plan is for a short period you can look for other short-term investment to invest.
On the whole, if you can convince yourself about investing in stocks then you could reap the benefits above.
Do not be discouraged
Investing in stock can indeed be risky but think about it every other investment also carries risk. The most important thing about stock and every other investment is to understand what they are all about.
It is like saying you want to be an engineer but you need to attend school and take the courses. Then you become fully equipped with the knowledge, you are then an expert.