Why Is It Good To Invest In Stocks?
The global economy is battling historically high levels of inflation, rising energy prices and a slowdown in growth. Experts believe the current situation puts India at an oasis. According to a research report, there are drivers in place that can make India the third-largest economy by the end of this decade. Thus, investors who are seeking higher returns can explore the stock markets. Stock market investments backed by thorough research and analysis can yield returns that are higher than what is generated by any traditional investment. First-time investors can start with smaller investments and gradually move higher to minimise risks. So why not invest in the stock markets and generate some additional income? This article aims to present the necessity to invest in the stock markets.
How to Invest in the Stock Markets?
Before we dig deep into the benefits of choosing stock markets as an investment avenue, let us understand the basics of investing and what is Demat account. Investing in the stock markets is simple and can be done through smartphones/tablets/laptops. To begin investing, you must open a Demat and Trading account with a brokerage firm. A Demat account is a warehouse where all your purchased securities are accumulated, and a trading account helps execute the transactions.
Why Invest in Stocks?
The stock markets have attracted not just millennials but investors across every age looking to grow their savings. What is so unique about the stock markets? Let us understand the key reasons why you should invest in stocks.
- Minimise Inflation Risk – Inflation is a common economic phenomenon that impacts investor returns. While seeking to grow your savings, you should stay ahead of inflation. The stock markets provide the most suitable platform to beat inflation. Selecting the right stocks, finding the most appropriate entry and exit points, and deploying effective investment strategies can take you a step ahead and give more substantial returns even during periods of high inflation. Additionally, lower Demat account charges can further maximise the already significant returns. Hence, investors should choose a broker and their Demat account after thoroughly analysing their service and associated costs.
- The Power of Compounding – The stock markets have the power to generate substantial returns through compounding. Suppose you invested Rs. 1,000 in stock and generated 10% returns. Your new principal amount becomes Rs. 1,100. Let us assume this amount grows again, magnifying your principal amount even further. While other investment instruments, such as Fixed Deposits, come with the benefit of compounding, their ability to generate returns is limited. On the other hand, stock market returns are not limited, and the right investment can earn huge returns.
- Diversification – It is advisable to diversify your savings across various asset classes. Investing a portion of your income in equity helps you achieve high growth on your constituent stocks. Depending upon your risk appetite, you can allot some specific percentage to low-risk investment avenues. But selecting equities as one of your asset classes is essential to achieve higher growth on your invested amount. Additionally, stock market investments facilitate diversification within equities by allowing the investors to take a position in different stocks and diversifying the risk associated with companies and industries.
- Passive income – Stock market investment can be carried alongside your regular job or business activities. It provides a source to generate passive income. Investing in the shares of fundamentally strong companies generates good returns through stock price appreciation and additional gains through dividend payouts. Most stock market investments are highly liquid and can be divested at investors’ will.
- Ownership of companies – By investing in the shares of a company, the investor purchases a part of its ownership. It allows the investors to own a company of their choice – both from the perspective of earning returns and from a sentimental standpoint of owning a stake in an organization you associate with.
Thus, stock market investments are beneficial in many ways and help investors maximise their returns compared to traditional investment options.
