What are the benefits of investing in stocks? Why should you invest in stocks instead of other activities like real estate or savings? To address this issue, let’s explore further with Tipstrade.org right below!
What is stock investing?
What are the benefits of investing in stocks? Before we delve into this content, let’s first explore what stock investing is.
Stock investing is a form of indirect participation by investors in businesses. In this process, investors invest capital to buy securities circulating in the market, with the hope of earning profits in the future. There are two main sources of income from investing in securities.
First is the income from dividends that a company shares with its shareholders. This usually happens when a company makes a profit from its business and decides to share some of this profit with its shareholders in the form of dividends.
Second is the income from taking advantage of the price difference of securities. For example, when buying XYZ stock at $10/share and after a period of time, the stock price increases to $15/share, the investor can sell the stock to earn a profit of $5/share.
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Key benefits of investing in stocks
Anyone who invests hopes to achieve high returns. Here are some of the benefits of investing in stocks that you should know:
Flexible investment channel
For investment channels such as real estate, foreign currency,..investors need to have large capital and most of the buying and selling transactions are not easy. Investing in the stock market is considered a flexible investment channel.
The way to participate in the market is very simple, newbies do not need a large amount of capital, even with a small amount of money, you can still choose good stocks to buy and keep for profit. In addition, in the stock market, you can trade anywhere with just a few clicks through the stock investment application.
Get profit from the difference in stock price value
Buying stocks when the price is low and selling them when the price is high is the biggest profit that all investors participating in the stock market are interested in.
With the development of the economy, stock prices can skyrocket in a short period of time, helping your investment increase significantly.
Specifically, let’s say you invest in Apple (NASDAQ: AAPL) on January 1, 2024, when a share is worth $82. By December 31, 2024, AAPL stock had grown exponentially to $150, an increase of more than 80% in just one year.
Receive regular dividends
In addition to the profit from the difference in stock prices, investors can also receive dividends from owning stocks.
When a business has good business results, they will periodically pay dividends to shareholders – those who are holding shares of the business.
Not only does this dividend provide additional income, it can also be reinvested, allowing investors to leverage the power of compound interest to significantly increase returns over time.
Protection against inflation
In fact, money can “evaporate” every day if you don’t use it, even if you only save it to earn interest.
Investing that money in stocks will help you preserve the value of your assets and even make more profit if you have a smart investment plan.
Especially during inflationary periods, stock investment becomes an effective solution to deal with the decline in purchasing power of money.
Corporate governance benefits
When you own shares, you become a part of that company. This means you will have the obligations and rights of a shareholder, influencing decisions on operations, business, and development orientation of the company.
Diversify your portfolio
Investing in stocks allows you to easily diversify your portfolio. By buying stocks from many companies in different industries, you can reduce your risk. For example, if one industry struggles, other industries may continue to thrive, helping you preserve your capital and maintain your profits.
Note: Although there are many benefits of investing in stocks, it’s also important to note that investing in stocks is not without risk. Those who participate need to be alert and accept risks to make a profit. However, with its flexibility and risk control capabilities, many investors still prioritize stocks as their primary investment channel.
How to invest in stocks for beginners
Getting started in the stock market is a process that requires serious planning and planning. Here are the basic steps for beginners:
- Open a securities account: Choose a reputable and professional brokerage firm to open an account with. This usually involves filling out an application and providing the necessary documentation.
- Select investment industry: Choose an industry or field that you have knowledge and understanding of. A deep understanding of the industry will help you make more informed investment decisions.
- Business value analysis: Master value analysis techniques to measure the growth and profitability of the business you are interested in. This may include reviewing financial statements, market trends, and future prospects.
- Find potential businesses: Selecting businesses with potential for future growth. This may involve evaluating leadership, market competition, and shaping company strategy.
- Buy stocks: Once you have decided to invest in a particular company, you can buy their shares through your opened brokerage account. Make sure that your account is funded with enough money to make the transaction.
- Investment planning: Develop a detailed investment plan, including your return target, holding period, and risk management strategy. This will help you maintain control and focus on your investment goals.
What do you need to prepare before investing in stocks?
Before you start investing in the stock market, it is essential to equip yourself with some important factors. Here are the things you need to prepare:
- Capital: The amount of capital you have will determine the level of participation and risk in stock investment. You should use idle capital and determine a reasonable amount of capital, suitable for your risk level and investment goals.
- Device: Owning a smart device such as a laptop, smartphone or tablet is important to be able to make transactions and update market information conveniently.
- Knowledge about stocks: Investing requires not only capital but also knowledge. Learn from reliable sources such as books, reputable securities companies, sharing from experienced investors, or participating in courses and events about securities.
- Information: It is important to stay informed about the stock market. Use reliable financial information sources to understand market trends, economic news, and factors that affect stock prices.
Conclusion
With the benefits of investing in stocks as mentioned above, there’s no reason why you shouldn’t start today. Whether you’re a new or experienced investor, stocks always offer attractive opportunities for financial growth. However, always remember that investing also comes with risks, and thorough research before making a decision is a crucial factor for your success.
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