Ask some people why they invest in stocks, and the answer is simple: Why not? After all stocks can help you build wealth, provided you make smart investing decisions.
Here are four reasons to consider investing in stocks:
Stocks are risky, but you can devise strategies to help deal with that risk-
Some people stay out of the stock market because they think it’s too risky. They’re worried about a big market crash and losing all they’ve invested. It’s true that investing in stocks does come with rick (as does any investment) and stocks tend to be more risky than other investments alternatives like bonds. But if you have a well-crafted portfolio and long-term investment strategy, you should be adequately prepared to weather the ups and downs of the market.
Stocks tend to outperform other investments over the long term-
Based on historical data; $1 invested in large stocks in 1926 would have grown to $4667 in 2013. In comparison, the same investment in corporate or government bonds would have grown far less- to $62 and $109, respectively. Keep in mind that stocks and bonds have different investment characteristics. Stocks can have fluctuating principal and returns based on changing market conditions, while government bonds have fixed principal value and yield if held to maturity and are guaranteed as to the timely payment of principal and interest.
Stocks can help you fight inflation-
If you put your hard-earned cash in a savings account earning 1% interest, you’ll end up losing money in the end ( in term of purchasing power), if inflation exceeds 1%. On the other hand, stocks tend to have average returns above inflation.
Stocks can help build your retirement nest egg-
Especially if you are young, a heavy lilt toward stocks in your portfolio can help you capture market gain now and benefit from the power of compounding. As you get closer to your actual retirement date, you may want to consider shifting your asset allocation to more conservative investment.
Keep in mind that stocks are primarily subject to nonmarket risk, or the risk that events specific to a company or its industry will adversely affect a stock’s price; and market risk, or the rick that a particular stock will be affected by overall stock market movement. Please call if you’d like to discuss stock investing in more detail.