Before investing in the exchange market or buying stocks, you must be aware that brokers are gaining financially whether you make gains or losses. It is important to choose the way to invest rather than to speculate or gamble. Although all investments in the exchange market were considered speculation between 1929 to 1932, of course, without speculators, larger companies such as Amazon would not be able to raise capital for their expansion. However, our core purpose is to teach how to be an intelligent investor rather than a speculator.
However, we are talking about the individuals who want to accumulate wealth through investing in exchange market through a short or long-term strategy, safely. If that is the case, then they must be investors or professionals rather than gamblers or non-professionals. However, the fundamental question is how to be investor? The answer is simple, before investing, investor must thoroughly learn basic investment knowledge, analyze a company’s underlying businesses, and protect themselves against the serious risk of incurring financial losses.
Individuals who want to achieve financial freedom should consider a passive or defensive approach of investment, which consumes little time or efforts by owning higher percent bonds than few funds or stocks in an important company with a high dividend, a long good record of high income in term of profitable operation and a strong financial condition.
Safely defensive approach is also by building a portfolio of the stocks of well-established investment funds, by initiating a dollar cost averaging approach, in which investor acquires a certain amount of funds every quarter or month. Thus, investors should just concentrate upon the selection of growth stocks that based on company’s record. Unfortunately, sometimes the issue is more complicated than that.
As mentioned in the strategy of fund investment allocation of portfolio, how much investors can be allocated in investors’ portfolio depends on what kind of investors they are. However, apart from defensive approach, active approach is also other an approach that the investor can consider to construct a portfolio by continuously researching, selecting, and monitoring a mix of stocks, bonds, or mutual funds. This approach, active or enterprising, is considered time and energy consuming. However, investors must not invest in any company without researching its financial statement and estimating its business value, no matter how great its product.
When an investor decides to take the initiative and buy stocks, she will find herself as the partial owner of a respective company, regardless of how small her share may be. As the company’s earnings improve, so will her stock. An investor may be rewarded in the form of both appreciation and dividends. In fact, since 1945, the average large stock has annual return income close to 10 percent. Stocks can serve as a short or a long-term savings vehicle, whenever stocks appreciated.
Investing in the stock market has become synonymous with high returns for some who knows how to invest. On the other hand, however, it is playing a risky game for others. The stock market is as much out of control as anything can be. If you invest in stocks, you will be at the mercy of a relatively volatile financial market.
Through investing in stocks investors can accumulate their wealth, diversify investments and be protected against inflation. In addition, publicly listed investing, particularly in stocks, is a way to invest while you are busy with life and have that capital work for you so that you can fully generate the rewards of your labor in the future. Legendary investor Warren Buffett defines investing as the process of laying out capital now to receive more income in the future. Therefore, we could define stock investment as a goal to invest capital to work in one or more types of investment vehicles in the hopes of growing the capital over time.
Of course, we are not denying that there are some sectors available to investors to invest their capital. While each investment sector has its advantages and disadvantages, the stock market has the characteristics of being an ideal sector to the majority of investors seeking high profits.
The characteristics that define stock market investing are the following:
Ownership and Liquidity
It’s becoming increasingly possible for investors to participate in ownership of any publicly traded company by simply buying its shares. A very significant advantage of owning stocks is that they are highly liquid assets.
Sharing Profits
An investor who owns the shares of a company becomes its shareholder, and as a result, atomically entitled to the company’s profits. These profits earned by the company are either distributed as a dividend to the shareholders or reinvested in the company. As the value of the company grows over time, its share price appreciates, which thus leads to growth in the shareholders’ value.
The best strategy to maximize profits is to hold assets for the longest possible time when not only investing in the company’s shares but also when investing in funds or cryptocurrencies. Bill Gates might have ended up wealthier than Elon Musk and Jeff Bezos combined by holding onto his investment in Microsoft, but he instead sold the vast majority of his Microsoft stock before leaving the board in 2020. Before selling, Gates had the equivalent of 2.06 billion Microsoft shares in September 1998, when the company first became the world’s most-valuable company. Gates’s 1998 holding would have been valued in November 2021 at about 693 billion USD, topping Musk’s net worth of 340.4 billion USD and Bezos’s net worth of 200.3 billion USD in 2022.
However, while shareholders can share the profits of a company, they are also exposed to potential losses that an investment can incur due to a share price decline caused by several factors, such as Ukrainian crisis or COVID-19, which happened in 2022 and 2020 respectfully. However, it is proven that, historically, stocks have been among the few investments to generate wealth in the short and long term.
For instance, the S&P 500 index grew without interruption between 1995 and 1998. In 1995, the S&P 500 index grew by 34.11 percent, followed by an increase of 20.26 percent in 1996. In 1997, the index made another push to 31 percent and 26.7 percent in 1998.
According to a data shared by Ibbotson Associates in 1998, performance investing in stock was higher than other financial investments. Using the value of one USD invested during the period between 1926 and 1997, the results show the following values:
Small company stocks 5,519.97 USD
Large company stocks 1,828.33 USD
Long term government bonds 39.07 USD
Treasury bills 14.25 USD
Inflation 9 USD
Beating Inflation
As compared to other investments, stocks have outpaced inflation since 1926. It has also been observed that the stock market investment is the best form of protection against heightened inflation.
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