Earning a decent amount of money has never been enough. It is equally important to invest it at the right place, to get the most out of our money. We all must have seen our parents talking about the different modes of investment available. But among all of them I prefer to invest in stocks. So, let’s analyse why investment in stock market is better than the rest.
1. BEST RETURN RATE:
Stocks, over a period of 15 years, have offered an average return rate of 15.6%. And the mutual funds, have given the return of 12% in last fifteen years. While the rate of inflation, has been around 7%, in India, which is now around 3%. This means that the net rate of return for stocks is 8.6% and that for mutual funds is around 5%.
On the other hand if the same amount, would have been invested in FD. The growth would have been about 8%. And, the net growth after nullifying inflation will be 1%.
The differences between the return given by the three different channels clearly shows us why you should invest in stocks.
For a better understanding, let’s take the help of a chart.
For example if a person have been doing regular SIPs of 1000 rupees, per month. Then the total amount invested in last fifteen years would have been 1,80,000. For FD the complete amount has to be invested at once.
The charts clearly depicts the value of different modes of investment after different duration of time.
The investment amount for all being same but, the return amount being diversified in all the cases.
2. BEAT INFLATION:
Inflation is the quantitative representation of the increase in price of a good or a service over a period of time. It is often expressed in percentage. The increase in its percentage implies the decrease in the purchasing power of a country’s currency. To understand this definition more clearly and precisely let’s consider an example. The cost of a new house in united states in 1980 was something around $77000 and the median income of $17,710 per year. While now the median house price in united states is $200,000 and median salary is $45,000. So, what is the reason behind this increase? The reason is inflation.
During making investment decisions it is very important to keep the effect of inflation in mind. The average rate of inflation in India has been around 7% in previous 15 years. While that for USA has been around 3%. The Indian stocks have generated a return of 15% annually, in the last fifteen years. And, that for the US stocks has been around 13%.
It clearly shows us that stocks of both the countries have outrun the rate of inflation with a very good margin.
Imagine, an Indian if had invested his/her money at a place which returns just 8% annually. What is the net return rate over the investment? It will just be around 1%, as the services and products have also become costlier by 7%.
So, do keep this effect in mind while choosing the channel for your investment.
3. REGULAR DIVIDENDS:
Dividends are the part of profit which the shareholder’s receive. Imagine, you have invested in stocks of a company. Money invested by you in the stocks of that company, goes to the company. This implies you are in a way providing money to the company to do business. Profits earned by the company is then distributed among the shareholders in the form of dividends.
This dividends are helpful in many ways. According to a report, if this dividend amount is re-invested in stocks then they increase your total receivable amount by 24%.
No other form of investment yields regular payouts for it’s shareholders. This reason also gives investment in stocks an upper hand over the others.
4. REACH YOUR FINANCIAL GOALS FASTER:
As the rate of return offered by stocks is more than the others. Therefore it also helps you reach your financial goals faster than others.
Financial stability is defined as the state which makes the investor feel financially secure. So, when the investor generates a net worth which makes him/her financially stable, is known as reaching the financial goal.
It is important to plan about the amount that can make you financially stable. This amount should be decided after keeping all the economic factors of the country in mind. It should not be a random number, based on your neighbour’s call.
YOUR MONEY SOME HOW REACHES THE STOCK MARKET:
If I tell you, almost all money invested anywhere some way or the other reaches the stock market. Will you agree?
Have you ever thought why do you get paid when you invest money at any place. For example, consider you invested your money in FD account of a bank. The bank offers you return against that investment. WHY? What does it do with the money?
The bank lends out the money, mostly to businessmen, in form of loans. These loans are used by the businessmen to do their business, which reaches to someone else. The other person puts that money in his bank account, which is then may be invested by the bank in stock markets.
This is how the banks make money, from your money. And in return it pays you interest for lending your money to them.
In stock market it is very important to pick stocks carefully.
The different methods to pick good quality stocks are:
So, these were some important reasons why stocks are the best form of investment.