10 Reasons Why You Should Start Investing in Stocks in 2022

Most people have considered investing in the stock market at some point. Their motivations for starting to invest may differ, but the end goal remains the same: “to make money.” However, they were hesitant to take the next steps because of various myths or misconceptions they had heard from their Uncle or close relatives.

Our family members, friends, and news stations have all advised us to avoid the market for a long time. For many people, the prevalent belief that “stock investment is like gambling” has become more of a fact than a myth. And it’s possible that this is why just about 3% of India’s population actively invests in the stock market.

We are going to smash down the barriers today. In this article, we’ll go over ten compelling reasons to begin investing in the stock market. If you want to invest in forex and stock, continue reading to learn more about stock and forex trading strategies

What motivates people to invest in stocks?

Stocks are purchased by investors for a variety of reasons. Here are a few examples:

  • When the price of a stock rises, this is known as capital appreciation.
  • Dividend payments are made when a firm distributes a portion of its profits to its stockholders.
  • Ability to vote on stock and exert influence over the company

Why do companies issue shares?

Companies issue stock to raise funds for a variety of reasons, including:

  • Getting out of debt
  • Introducing new products
  • Adding new markets or areas to your business
  • Increasing the size of existing facilities or constructing new ones

What types of stocks are available?

black flat screen computer monitor

Stocks are divided into two categories: ordinary stock and preferred stock. Owners of common stock are entitled to vote at shareholder meetings and to dividends.

Preferred stockholders typically do not have voting rights, but they do receive dividend payments ahead of common stockholders and have priority over common stockholders if the company goes bankrupt and liquidates its assets.

The following are some of the several kinds of common and preferred stocks:

  • Earnings are expanding at a quicker rate than the market average in growth stocks. Investors buy them in the hopes of capital appreciation rather than dividends. A growth stock is likely to be a start-up technological company.
  • Dividends are paid on a regular basis by income stocks. They are purchased by investors for the income they generate. A well-established utility firm is likely to be a reliable source of income.
  • Value stocks have a low price-to-earnings (PE) ratio, which means they are less expensive to purchase than companies with a higher PE ratio. Value stocks can be either growth or income companies, and their low PE ratio may indicate that they have fallen out of favour with investors for whatever reason. People buy value stocks in the hopes that the market will correct itself and the stock’s price will rise.
  • Blue-chip stocks are investments in large, well-known corporations with a proven track record of success. Generally, they pay dividends.

10 Reasons to start investing in the stock market 

  1. The potential for higher returns. When compared to alternatives such as bank certificates of deposit, gold, and Treasury bonds, the primary reason most people invest in stocks is the potential for higher returns. Since 1926, for example, the average stock market return has been around 10% per year; long-term government bonds have returned 5% to 6% per year during the same time period.
  2. The capacity to shield your wealth from inflation. The stock market’s returns frequently outperform inflation rates. Since 1913, for example, the long-term inflation rate has been at 3.1 per cent per year. Stocks, on the other hand, have a double-digit annual return. Stocks have shown to be an effective inflation hedge.
  3. The ability to receive consistent passive income. Many businesses offer investors dividends or a percentage of their revenues. Although some corporations pay monthly dividends, the bulk pays quarterly dividends. Dividend income might assist an investor to augment his or her salary or retirement income.
  4. The pride of ownership. A share of stock symbolizes a portion of a company’s ownership. You can own a small piece of a business whose products or services you enjoy.
  5. Liquidity. Most equities are traded openly on a large stock exchange, making buying and selling them simple. It also makes equities a more liquid investment than other possibilities like real estate investments, which are difficult to sell rapidly.
  6. Diversification. Stocks make it simple to establish a diverse portfolio that spans a variety of industries. This can help you diversify your whole investment portfolio, which may include real estate, bonds, and cryptocurrency, lowering your overall risk profile while increasing your returns.
  7. The flexibility to start small. Many online brokers provide no commissions and the ability to acquire fractional shares, allowing investors to start investing with as little as $100.
  8. Investing in stocks has never been easier. Using an online brokerage account to invest and trade has never been easier. With the help of major online brokers, you can now buy and sell stocks using your smartphone in seconds.
  9. Furthermore, with the proliferation of financial websites and apps, finding and selecting stocks has never been easier. You no longer have to go through all of the dull financial periodicals and publications, and you no longer have to rely on newsletters to acquire the company’s financial data.
  10. Long-Term Investments and the Power of Compounding. Compound interest, which multiplies your money enormously, is a benefit of stock investing. The majority of bank savings accounts pay a basic interest rate. Investing in stocks, on the other hand, might provide compounded profits. “Compounding is the eighth wonder of the world,” famed scientist Albert Einstein reportedly declared.

Warren Buffett, the world’s greatest investor, is credited with a compounded annual return of roughly 22% over the last five decades. Furthermore, his long-term compounded return has made him one of the world’s wealthiest men. One of the main reasons why people should participate in the stock market is the power of compounding.

Investing in stocks comes with a number of risks

We’ll look at some of the disadvantages of stock investing now that we’ve explored the advantages. The most significant risk associated with equity investing is stock market volatility. The stock market drops 10% from its high every 11 months on average, 20% every four years, and more than 30% at least once per decade. Stock investing isn’t for everyone because of the volatility. Here are a few reasons why you should avoid investing in stocks:

  • You can’t bear the prospect of a 10% (or larger) loss on your investment.
  • Within the following three to five years, you’ll need the money for a down payment on a house or another significant planned purchase.
  • You’re retired or on the verge of retiring and prefer a steady income stream over the capital appreciation possibilities of stocks.

Aside from concerns about volatility, there are other reasons to avoid stocks:

  • You have a lot of debt with a high-interest rate, such as credit card debt. Paying off debt can typically provide better returns than investing in stocks.
  • You don’t have enough money set aside for an emergency. Having enough cash on hand to meet an unexpected purchase can help you avoid having to use your credit card.
  • You don’t have the time or inclination to conduct stock research.

Final Thoughts

person using MacBook Pro on table

We explored ten of the best reasons to begin investing in the stock market in this article. The most compelling reasons to invest in the stock market are to beat inflation, provide a secondary source of income, and, of course, earn higher returns on your money.

That concludes this article on the top ten reasons to invest in stocks. I hope you found this article helpful. Please leave a comment below if there is another reason to invest in stocks that I overlooked or if you want to add to the list of top ten reasons to invest in stocks. I’ll gladly include them as well. Have a wonderful day and good luck with your investments!

Starting your stock market journey? Please do share this article with other readers if you find it helpful!

 

Photos: 

https://unsplash.com/photos/Wb63zqJ5gnE

 

 

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