5 reasons to invest in Stocks

Uploaded by : DreamGains Financials, Posted on : 25 Aug 2015


1) Market risk is just one risk of many

Market risk is just one risk of many


Losing money in the stock market is not the biggest threat to your wallet. People without a large amount of money saved for retirement run the risk of outliving their savings. Those who invest only in very safe investments risk losing purchasing power to inflation.

To mitigate the risk of inflation, investors don’t need to swing for the fences, trying to reach for high returns. The historical rate of inflation is around 3 percent. A diversified mix of safe and riskier investments would provide portfolio growth without the danger of it completely catering in a market downturn.

2) The stock and bond markets are vast


The stock and bond markets are vast


Stocks and bonds are the meat and potatoes of investing. In general, buying a stock is more risky than buying a bond. Some stocks are less risky than others, though. For instance, you probably won’t lose your shirt with an investment in Johnson & Johnson, a large company, versus a wobbly, small company with uncertain earnings potential. Conversely, because a smaller company is more likely to grow a lot versus an established global brand, the potential for a big payoff is greater.

Bonds act in a similar fashion, with very risky companies offering higher returns.

No matter your situation, there is a mix of investments that will satisfy your goals and risk tolerance — as long as your goals and ability to withstand risk are realistic and not a fantasy. You can’t expect a 100 percent return in three months with no risk.

3) Planning should reduce risk


Planning should reduce risk


Asset allocation is how you divide your money among various investments. The way you mix investments determines the overall level of risk in the portfolio. With the right mix, you can control portfolio volatility to a certain extent. You also have some control over the level of returns. Higher-risk investments generally offer higher returns; lower risk equals lower returns.
All stocks are not equally risky and all bonds are not equally safe.

Buying and selling of investments is inevitable. Whether you regularly rebalance or employ a tactical shift in your asset allocation, having a system in place to tell you when to buy and sell will keep you from panicking and bailing out at the wrong moment. A well-planned methodology will take fear and elation out of the equation.

4) Time in the market, not timing the market


 Time in the market, not timing the market

Trying to time the market eventually makes fools of most people, whether on the way into the market or on the way out. No one knows what is going to happen or when.
Don’t wait for the right time. Instead, start rupee cost averaging into the stock market. That strategy involves investing a percentage of your paycheck into the markets regularly, such as in a workplace retirement savings plan.

5) The market isn’t that manipulated


 The market isn't that manipulated

Small investors may have the sense that the deck is stacked against them and they can’t win against professional traders with their impossibly fast computers and complex algorithms. And that is largely true. But the good news is that retail investors are such small potatoes that all that stuff doesn’t matter.
Scandals and scams do erode the public’s trust in the stock market, but in the end, not joining in the economic growth leaves regular people behind.