Are you considering the viability of investing in stocks? Stock investing is a safe way for market investors to grow their funds in the short or long term. With careful investment in companies that show consistent growth and escalating earnings, your money is sure to grow over time. You can achieve many more perks from investing in stocks. Here are the key benefits you gain.
Benefit #1: Grow your wealth
When you compare stock investing to cash and fixed-income methods like bonds, it gives better returns in the long term. As an investor, an important factor you have to consider here is the shifting market prices over time. With stocks, the fluctuations tend to even out over a longer span, so it is preferable to go for long-term options.
Benefit #2: Safeguard your funds
Inflation and taxes can diminish your earnings considerably. But stock investing does not attract high taxes. So, you can reduce or prevent the inflationary impact and taxation effect with long-term plans.
Benefit #3: Boost your income
You can enhance the advantages of stock investing via special distributions or dividends. The benefits include:
- The methods ensure you have a regular passive income.
- By adding to the returns, there is a big increase in what you receive via the stock.
- The dividend acts as a price buffer reducing the volatility of the price.
- Consistent dividend payments are indicative of growth in your earnings. It also denotes the stability of the company.
- Dividends help to increase your retirement fund or boost your portfolio’s value.
- Reinvestment plans for the dividend amount help to earn more by investing in shares for which you received the dividend.
Benefit #4: Diversification
You can invest in different types of stocks and get many perks out of it like:
- The method diversifies your stock investing process.
- It reduces portfolio concentration and risk.
- You can boost your wealth with proper diversification.
- The method helps you gain returns even if some of the stocks decrease in value.
Benefit #5: Liquidity
Liquidity is another benefit you get with stock investing.
- You can buy or sell your stocks immediately.
- The process is quicker than disposing of assets like debt instruments, real estate, etc.
- The transaction cost is also lower.
Benefit #6: Hedging
Market inflation can impact the value of your stock. Investing in stocks can help during such inflationary periods. You can hedge against inflation with the returns you get from your stock. An inflationary condition leads to companies profiting from the change. By choosing well-performing assets that can withstand inflationary conditions, you can successfully overcome the impact of inflation.
Benefit# 7: Start small
You can begin with smaller amounts as stock investing offers a flexible process. The small and mid-capital companies offer units at an affordable cost, and the best UK stockbrokers are happy to let you start investing for £50 or less. Further, you get the freedom to choose the companies you want to buy stocks in and the amount you invest regularly.
Benefit # 8: Exploit economic growth
When the economy is growing, there is an increase in corporate funds. Higher funds lead to more jobs, higher demand, etc., which can result in better sales and earnings. By investing in such stocks, you can ensure higher and stable returns.
Benefit # 9: Easy and quick process
The stock investing process is easy and fast now, thanks to the abundance of services, such as:
- Financial planner/consultant
- Online investing
The time required is very minimal for account setup and starting the process. As the entire stock investing process takes place online quickly, there is no hassle of going out to set up the account or cash out your returns. The profits you earn are credited to your account directly.
Benefit # 10: Varied benefits
Stocks can be of two types, the common and preferred types of shares. The former type provides tax-efficient returns. You have voting privileges due to your shareholder status. Buying or selling the shares is faster than selling your jewellery, artwork, or real estate. In this stock investing format, you attract fewer taxes.
Preferred shares provide a reliable return higher than what you get with the former type. The preferred type is divided into different types. Each sub-category has unique features. For instance, you can find shares that allow the accumulation of unpaid dividends. Another type lets you convert the shares to the common category.
Benefit # 11 – Investing in private stocks
Usually, you invest in the stock of companies that have gone public. These are companies who have been listed onto the stock exchange and have had an initial public offering (otherwise known as an ipo). However, it’s also possible to invest in private stock. This is essentially the buying of stock from companies who are yet to go public. This often occurs when investors have grown tired of waiting for the business to go public, especially when there have been rumours. Instacart is a great example because a few years ago (2019, after being founded in 2012) the CEO and founder, Apoorva Mehta mentioned they’d eventually look at an Instacart IPO but nothing has come of it yet. As such, key investors would technically look to invest in the private stock. It’s a good way to diversify a stock portfolio too. So, don’t just consider public stock, consider private too.
Stock investing comes with several benefits as you can see from the above list of benefits. It allows you to grow your funds in a rising market and counter inflationary conditions effectively. While there are risks such as having to compete with professional players and paying taxes on the share sales you make, you can diminish the risk.
Diversification is a significant method to minimize losses. You can diversify based on the size of the company, location, type of investment, and via ETFs and mutual funds. When you consider the history of stock investing, the benefits outweigh the risks.