Why Stock Market Investments?
A guide to online investing
Stock market investments, like all investments, have the aim to increase wealth. However, some investments are easier to get into and to manage than others.
Probably the most popular are shares, property and small businesses.
Most of us during our life will have to buy or rent property in which to live. We may well experience property buying and selling because of our need for shelter.
However, because of the increasing lack of affordability of houses, more young people will inevitably look to stock investing to build up capital.
Why is this happening?
There are probably several reasons. Firstly, unlike property, you can start stock investing with as little as a few thousand dollars.
Another reason is that investing in the stock market offers much greater diversification.
This to me goes a long way to answer the question as to whether stock market investments are the way to go.
Property buyers usually can only afford to start off buying one investment property, and usually with a deposit that might amount to 20% of the value of the property.
This deposit could amount to somewhere in the region of $A50,000 - $A100,000 for the one investment which, due to their inexperience, may not be a good one.
It may also involve an investment loan of hundreds of thousands of dollars, together with high transaction costs.
A further advantage of stock market investments is that it is much easier to accurately track stock market performance every working day.
Tracking the performance of property investments is fraught with uncertainty.
A beginner stock market investor can start with $A5,000 to $A10,000 of their own money and invest in three to six companies with no start-up loans.
For a small outlay they achieve immediate diversification!
Over time, with greater experience and confidence, a stock market investor can invest in other companies and consider a margin loan based on the equity in their current portfolio, without requiring a deposit.
Of course another investment approach is to start your own small business or to buy a business franchise.
Again, this could involve a large investment of your own money and a large business loan.
And what sort of diversification do you have? – zero!
Starting your own business is a high risk investment as evidenced by the number of start-up businesses that fail.
Does this convince you that stock market investments are worth consideration?
A working knowledge of different stock types would be an advantage as some of the different terms used can cause confusion in the mind of an investor searching for value.
Understanding the difference between defensive and cyclical stocks for example, can be important at different stages of the market cycle.
... as can knowing how preferred stock is different from ordinary stock.
So while I consider that stocks are good investments, like most other successful endeavors in life, it is important to understand them thoroughly.
Related ArticleStock Types
- They help to determine what to buy and when!
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