Benefits of Investing in Financial Markets

Benefits of Investing in Financial Markets

Here we will discuss some of the advantages of owning stocks:

  • Long-Term Advantages: Stocks offer a way to invest into different companies, industries or indexes over the long term. Owning these assets over the long term and letting it compound has the potential for large returns. 

 

  • Capital gain and Dividend Income: Stock returns are generally derived from capital gains and dividends. A capital gain is attained when you sell a stock at a higher price than you purchased it. While dividends are a part of the profit that a company gives its shareholders over some time.

 

  • Diversification: The stock market has earned a reputation for being volatile. Rather than piling up your spare cash in a dormant low-interest savings account, you can make it work for you. Alongside stocks, other securities can be purchased on the stock market, and in the event of one failing, another rises. Mixing up your stocks with bonds, CDs, and other fixed-income securities is generously rewarding in the long-run. Therefore a benefit of investing in stocks is that they are added to create a diversified portfolio.

 

  • lower capital requirement: You do not need a lot of money compared to other forms of investment like real estate or art. The stock exchange lists thousands of companies, all with varying prices. Some stocks trade for only a few dollars and below. With cheaper broker transaction fees, investing small sums of money is becoming more available. 
  • Tax Advantages: capital gain and dividend income sometimes have preferential treatment for tax purposes. This is to incentivize investment, check how your local region treats these for taxes. 
  • Liquidity: Transactions in the stock market occur constantly and many have large amounts of people buying and selling the stock. This constant buying and selling, allows the stock market to be a place where people can enter and exit investments. The ability to enter and exit these investments without causing too much of a price increase/decrease of the asset is referred to as liquidity. The more liquidity, the better generally. Therefore, one of the benefits of the stock market and many major stocks is that they have high liquidity compared to assets that are harder to sell, such as real estate. 
  • Ease of Access: The emergence of online trading platforms resulting from the simplification of stock market trading. With just a click, stocks can be bought or sold. Further, trading costs have decreased a lot in the past decade.