The stock market is revered as one of the most integral parts of any wealth-building portfolio, but for someone just starting out in investing, it can seem very intimidating.
If you are a beginner and have not purchased stocks before, you may not know where to start or why stocks may be a good choice for you.
Here are five advantages to purchasing stocks that can help you to decide what role owning stocks should play in your own personal portfolio.
5 Big Benefits Of Investing In Stocks
Ownership of Companies That You Believe In
One of the unique aspects of the stock market is that it allows everyday consumers the opportunity to actually own a piece of a public company. One of the most common reasons people purchase stock is that they feel strongly about a company and think it will grow and prosper in the future. When you purchase shares of stock, you get to participate in that company’s financial growth over time.
Aggressive Growth Potential
There are many types of investments out there in the world today, but few have the growth potential of stocks. In fact, stocks technically have unlimited growth potential. If you had purchased $1,000 of Apple stock during its initial public offering, it would be worth hundreds of thousands of dollars today. Most stocks will not have this kind of explosive performance, however. It is important to understand that not all stocks will perform the same way or even perform well for that matter. When it comes to stocks, nothing is ever guaranteed.
The Ability to Build a Portfolio
When you are purchasing individual stocks, you have the ability to tailor your portfolio for your specific investment needs. Some investors may have a long term time horizon and maybe looking for appreciation in the value of their shares over time. Others may desire current cash flow from their portfolio over long term growth. For either circumstance, there is a portfolio that could suit your needs depending on what types of stocks you choose.
Different types of stocks are typically expected to perform in certain ways. Growth stocks are usually less established companies that are in the expansion phase of their trajectory. They often do not pay dividends to their shareholders. Income stocks, on the other hand, are generally more stable, well-established companies that have the ability to pay their shareholders a consistent dividend. There are many resources available that can help you to identify stocks to buy now that are suitable for your objectives.
No Extra Fees
Choosing to buy stocks, as opposed to mutual funds or ETFs, can be a much cheaper choice in terms of fees that you would have to pay. Generally, the only fee you pay when you invest in stocks is the commission for buying and selling. These days, brokerage firms often charge little to no commission fees for self-directed trades. This is not the case for other types of investments, such as mutual funds, which charge underlying fees, also known as the expense ratio of a fund.
Stocks Beat Inflation, Bonds, Fx & Commodities
When thinking in terms of the return on your investments, it is important to take into account that inflation over time can erode the purchasing power of your funds. Some investments, such as bonds and CDs, are not inflation-adjusted. This means that if you invest $10,000 in a ten-year bond today after the bond matures, you will get the $10,000 back, but it will not have the same purchasing power that $10,000 had ten years prior. You will get paid the interest on the bond, but your total return will be reduced by inflation. Stocks, on the other hand, do keep up with the rate of inflation because shares are constantly being traded all the time, and inflation gets priced into the price of the shares.
There are many advantages of including stocks in your financial portfolio. Though getting started in stock market investing can seem intimidating at first, there are plenty of resources available to assist you in making the best decisions when you are building your portfolio.