stocks

One of the main reasons to invest in stocks over the long term is compounding interest. Suppose for a moment that you plan to invest an unknown amount in shares of a company for several years. Assume that after the first year, your investment grows to $1,000, and you receive a cumulative 10% annual return.

Return of Investment

Once you reach the final year of your investment journey, your investments will have grown to over twice that amount. In other words, compounding interest has paid for itself four times over. Now imagine doing the same thing four years later. You would end up with a small portfolio containing perhaps a few hundred shares of a company that had grown to become one of the largest corporations in the world. That company alone would have paid off all of your original capital, and you would have seen a considerable amount of profit.

Tax Gains

There are other reasons to invest in stocks. A person who is building an investment portfolio will also want to include bonds in their portfolio. The reason is that saving money on taxes is one of the advantages of investing in a tax-deferred account such as a savings account or a certificate of deposit (CD). By keeping the money in a savings account, the investor can claim a tax break each year on selling their stocks and bonds.

High Returns

An investor may choose to invest in low-risk, high-return options such as bonds or CDs. This can also help them build a portfolio that will eventually provide them with a high returns profile. However, to determine what stocks will give the best high returns, it is essential to decide on the appropriate risk level for investing in those stocks. Many investors get into trouble by not considering this issue and inadvertently choosing a stock or option that requires too much risk to provide high returns.

The More Investments the Better

One of the primary reasons to invest in stocks lies in their ability to grow. Since the price of a stock will fluctuate up and down, they are an excellent way for investors to benefit from fluctuations in prices without bearing the entire financial burden of those fluctuations. For example, a company could issue a profit warning for one financial quarter but expect its stock prices to rise in a matter of weeks or months. By purchasing a predetermined number of shares of stock at a predetermined price, the investor will receive immediate cash and then have time to wait and see if the price continues to rise. If it continues to increase, the investor can sell those shares for a profit.

Bottom Line

There are many other good reasons to invest in stocks as well. If you don’t want to put yourself at the mercy of a financial market, you’ll want to make sure you have some investments available to you. If you don’t know what you’re doing, though, it’s a good idea to pay for a good stock trading software program and forex trader that will help you to understand what you’re doing and make money from the market, day in and day out. It’s a good investment that can lead to an excellent financial future.…