Benefits of investing in stocks
1. The potential to earn higher returns
The primary reason most people invest in stocks is the potential return compared to alternatives such as bank certificates of deposit, gold, and Treasury bonds. For example, the average stock market return has been about 10% annually since 1926; long-term government bonds have returned 5% to 6% annually during the same period.
2. The ability to protect your wealth from inflation
Stock market's returns often significantly outpace the rate of inflation. For example, the long-term inflation rate has run about 3.1% annually since 1913. That compares to a double-digit annual return from stocks. Stocks have been a good way to hedge against inflation.
3. The ability to earn regular passive income
Many companies pay dividends, or a portion of their profits, to investors. The majority make quarterly dividend payments, although some companies pay monthly dividends. Dividend income can help supplement an investor's paycheck or retirement income.
4. The pride of ownership
A share of stock represents fractional ownership of a company. You can own a tiny slice of a company whose products or services you love.
5. Liquidity
Most stocks trade publicly on a major stock exchange, making it easy to buy and sell them. It also makes stocks a more liquid investment compared to other options such as real estate investments that you can't quickly sell.
6. Diversification
You can easily build a diversified portfolio across many different industries through stocks. That can help you diversify your overall investment portfolio, which could also include real estate, bonds, and cryptocurrency, reducing your overall risk profile while improving returns.
7. The ability to start small
Thanks to $0 commissions and the ability to buy fractional shares with many online brokers, investors can begin purchasing stocks with less than $100.
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