Why are Stocks Good Investments
- a guide to online investing

Why are stocks good investments? 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? I think there are 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 stockmarket offers much greater diversification. 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 investing 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 answer the question: "Why are stocks good investments?"

If you are starting to invest then the beginners guide to investing may provide further assistance.

Also, 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.

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