Why Invest in Stock Market When There are Other Investment Options?

Advantages of Stock Market Investing

Why I Love Stock Investing So Much

Summarized Overview

In this article you will find information about reasons to why invest in stock market than other investment options, historical stock market performace from 1926 to 1999, short comparison to other investment vehicles, namely mutual funds, real estate and own a business.
Happy Investing!

Three Reasons Why I Invest in Stock Market

Advantages of Stock 1: Own Profitable Businesses

This is the major reason to why invest in stock market. Building own business might be your ambition, especially if you are an employee like me. But no matter how big or small the business you are going to build, it require A LOT of commitment, time and money.

With stock, owning a business is a lot easier, and cheaper too!. Just imagine, owning a business empire without ever showing up at work. You just have to sitback and relax, watch your company growing from time to time.

By the end of the year, you can collect checks from dividend issued. As your company grows, your stock valuation appreciates as well. You will be amazed on how much return you'll be getting by just holding them as long as possible. Does it sound too good to be true?

Advantages of Stock 2: Flexible Holding Position

You can buy more of the same stock if you find it profitable and undervalued. On the other hand, you can sell some or all of them if it is overvalued or the company losses money. Depend on your stock investing strategy, this flexibility can help you achieve your financial goal faster.

Unlike if you had your own business, even if it losses money, you have to stick with it and struggle to make it profitable to cover your ongoing overhead costs. Same goes to real-estate. If you made mistake since the first day you own the properties, you'll end up losing more and more money paying the mortgage with no rental income to cover.

Advantages of Stock 3: Can Do-It-Yourself

What is your primary investment options? Cash Deposits Stock Market Mutual Funds Own Business Real Estate Others

I can analyze stock profitability, track stock performance, call my broker for transaction and organize my stock investing strategies all by myself. I just have to catch up with few financial ratios either from analyst reports, business magazines, local newspapers or simply from myannual reports collection.

With good time management and focus on your research, all these processes are not require a lot of commitment, really. You don't have tenant to manage, supplier to deal with or customer to face in stock investment.

Unlike mutual funds, you have an absolute control over your investment decision. I can still have fun with my families and concentrate on my working career but make more and more money.

Historical Stock Market Performance

The average stock market is growing over time. Even excludingdividends paid, bonus issue or right issue, the stock market still able to grow 11 to 18 per cent per annum. Cool huh? Can you imagine if your stock has above average performace? Believe me, you can reach even 35 per cent return!

This is why invest in stock market is a very attractive options.

http://www.stock-investment-made-easy.com/why-invest-in-stock.html

The Road to Building Wealth

The Four Principles

1 . Invest regularly.
You can begin by investing as little as $25, $50 or $100 a month. As your
resources grow, your monthly investment can grow. The important thing
is to invest on a set schedule over time.

2 . Reinvest earnings, dividends and profits.
If a stock pays dividends, reinvest them to buy more shares. If you sell
a stock, apply the proceeds to another investment.

3 . Invest in quality growth stocks and mutual funds.
With the right growth stocks and equity mutual funds, you can achieve
goals like doubling your money every five years with an acceptable
amount of risk.

4 . D i v e r s i f y.
A balanced portfolio includes companies of various sizes from different
industry segments and mutual funds from various categories. This kind of
diversification helps reduce risk and broaden investment opportunity



Also read:
Searching for Good Quality Growth Companies
http://www.investlah.com/forum/index.php/topic,23855.0.html

Investor of marketable shares has a double status, with the privilege of taking advantage of either at his choice.

The impact of market fluctuations upon the investor’s true situation may be considered also from the standpoint of the shareholder as the part owner of various businesses.

The holder of marketable shares actually has a double status, and with it the privilege of taking advantage of either at his choice. 

1.  On the one hand his position is analogous to that of a minority shareholder or silent partner in a private business.

• Here his results are entirely dependent on the profits of the enterprise or on a change in the underlying value of its assets. 
• He would usually determine the value of such a private-business interest by calculating his share of the net worth as shown in the most recent balance sheet. 

2.  On the other hand, the common-stock investor holds a piece of paper, an engraved stock certificate.

• This stock certificate can be sold in a matter of minutes at a price which varies from moment to moment—when the market is open, that is—and often is far removed from the balance sheet value.

Why Don't You Invest?

By Morgan Housel | More Articles 
February 28, 2012 | Comments (24)

Last month, The Motley Fool posted a beautiful video titled "Why Do You Invest?"

"Is it for the fancy cars? The dream home?" the ad asks. "Maybe we invest for our families," it ponders, a reason I think most investors would agree with.

But there's a related question for millions across the country: Why don't you invest?

About 54% of U.S. households own stock investments, according to a 2011 Gallup poll. That leaves 46% that do not.

Part of this is due to a lack of wealth -- many American households simply don't have any money to invest. But there's more to it. A 2008 paper by a trio of economists showed that (link opens PDF file) sizable numbers of even the wealthiest Americans don't own stocks. 

• Of households ranked in the third quartile of wealth, 34% did not own stocks either directly or through mutual funds. 
• Of those in the top quartile, 14% had no stock exposure. 
• Within the richest 5% of American households, 6% owned no stocks.

Some of the wealthiest households may avoid stocks because ownership in private businesses offers better opportunities. But for others, the excuses are more interesting.

Two centuries of data makes one point clear: Over the long haul, stocks trounce the returns of bonds, cash, commodities, and real estate -- and they do it with less risk. 

• Adjusted for inflation, $1 invested in stocks in 1802 was worth $755,000 in 2006. 
• In bonds, $1 turned into $1,083. 
• Gold grew to $1.95. 
• Cash depreciated to $0.06. 

During that 200-year stretch, the worst 20-year period 

• for stocks produced a real return of 1% a year. 
• For bonds, the worst period eroded half of investors' purchasing power. 

Stocks win over the long haul, and yet a large number of Americans avoid them.

Why is hard to know, but not particularly surprising. Americans' love for self-destructive financial behavior is never-ending. One incredible 2005 report (link opens PDF file) led by Yale economist James Choi showed that 

• half of workers over 59.5 years old -- and hence eligible to withdraw money from a 401(k) plan right away -- do not contribute enough to retirement plans to take full advantage of employer matching, turning down money that would have been theirs to spend immediately. 
• Two-thirds of those over 59.5 years old not participating in a retirement plan with employer matching said they would never sign up. It's astounding, as they could have pulled the money out the next day penalty-free.

Choi's paper doesn't detail attitudes toward stocks, but his results speak volumes about people's attitudes toward money in general. When something requires a modicum of effort, many Americans decline -- even if it offers substantial rewards. Our aversion to paperwork can be stronger than our desire for money.

Past performance also guides people's willingness to own stocks. 

• While 54% of households currently own stocks, 
• that figure was as high as 65% in 2007 when the market hit an all-time high. 

As USA Today wrote in 2005:

In 1996 and 1997, when the bull market was in full swing, Washington [state] gave its teachers an option of staying in the traditional pension plan or switching to a hybrid pension plan -- 50% of assets in a traditional pension and 50% in a private account. Seventy-four percent opted for the hybrid plan. But when public employees were offered the same choice in 2002 and 2003, after the slump, only 11% chose the hybrid offering.

Those who do invest in stocks tend to do miserably at it, reinforcing their perception that it's a losing game. 

• One study by Dalbar showed that (link opens PDF file) the S&P 500 returned 9.14% a year over a 20-year period ending 2010, but the average investor earned 3.83% a year by buying high and selling low. 
• Stocks crush bonds over the long run, but many would be better off in bonds so long as they stay put. They're that bad at investing.

Then there's the fear of being cheated. The same three economists mentioned above wrote a great paper (link opens PDF file) in 2008 asking a group in the Netherlands a simple question: "Generally speaking, would you say that most people can be trusted or that you have to be very careful in dealing with people?"

The question has nothing to do with stocks, but it was highly significant in predicting stock ownership. 

• "Trusting others increases the probability of buying stock by 50% of the average sample probability and raises the share invested in stock by 3.4% points," the authors wrote. 
• The results "explain the significant fraction of wealthy people who do not invest in stocks." The study is likely applicable to the United States.

Another possibility -- though one I don't have evidence for -- is that people willingly forego higher long-term returns to avoid the nausea of stock volatility. 

• Academic economists tend to view people as unemotional "utility maximizers" for whom rational behavior equals whatever is most efficient, but the real world is different. 
• Trading a percentage point of returns for a better night's sleep may be worth it for those who value a peaceful life over a large net worth. 
• What looks irrational on the chalkboard often makes sense in the real world.

With pensions a dying relic, more Americans are now responsible for financing their own retirements. For most, the only way to get there is heavy exposure to stocks over many years. Will those now shunning stocks eventually change their minds? Will they ever get to retire? It's hard to know. Never underestimate people's willingness to undermine their future.

http://www.fool.com/investing/general/2012/02/28/why-dont-you-invest.aspx

Jump-Starting Your Personal Finance - Achieving Higher Rates of Return

For many people, it is usually after years of not paying much attention to how they handle money, or after taking bad advice from others they've trusted (including professionals), that they finally realize: "Hey, this is my money and no one really cares more about it than I do. And it will not multiply unless I do something about it". At this point, the path you take can have long-term effects. Let me bring a few important points to your attention to help you on your journey.

Higher Rates of Return

When you finally come to the realization that you need to take a more active role in handling you personal finance there is a natural tendency to look to the stock market. That's usually because stock in a company is one of the easiest securities to acquire. There is also a sense of excitement or prestige with being in the stock market. However, lets put the emotions aside and look at what the real issues are.

One thing you must consider, especially when starting out is the return on investment. The stock market historically gives 7-10% annually. This is not a bad return if you are looking to park a huge amount of cash (say a few hundred thousand and up). But if you are starting out with not much excess cash, you need to get higher rates of return. If you have $5000 and you invest that at a rate of 10% a year, in 5 years you will have about $8000. That is not fast enough if you really want to take control of your personal finances. You will need to learn how to get higher rates of return than that. Remember the higher your rate the less time it takes for your money to multiply.

Assessing Your Options

The question then becomes how can you achieve higher rates of return. Many, at this point tend to gravitate towards using aggressive stock strategies or short-term trading to get higher rates of return. This could take years and many dollars (both in the cost of educating yourself and bad trades) to learn how to do and the probability of success is not very high. But if you are just starting out you don't have that kind of money to loose. Your best alternative for higher rates of return is to start a business that meets certain criteria.

The kind of business you want to start is one with low startup cost and high profit potential. Yes, it does take more effort to manage than a passive instrument such as stocks. But this is where you have a higher probability of getting returns that are in the 100% per year range, and even higher if you play your cards right. And these returns can be much more consistent than with stocks. Here are some other points to consider about starting your business for higher rates of return:

1. No longer is the option of starting your business limited to huge upfront investments (such as buying a franchise). Today it is possible to start businesses with very little money and have high profit margins.

2. The time requirement need not be prohibitive. Many successful businesses are started part-time buy full time employees. Also, depending on the kind of business you start, the internet can help to make it easier to manage.

3. You have more control of your investment. Once you place your money into a stock you have no control over what the price of that stock will be. With your own business, you control it. And there are many resources to help business owners.

4. The long-term prospects of starting your own business are good. You may not hit a home run on your first try (although that has been done before, and is far more likely than making a million on the first stock you pick) but if you keep at it you will improve and so will your personal finances.

Remember to approach your business like an investment. Learn how much is required to start, the expected rate of return, when you expect to make your money back etc. Even if you do decide to take a more active path in the stock market (i.e., trading stocks), take the time to learn how it is done before risking your hard earned money.

To your success.

Rodger Campbell is an entrepreneur and writes on various topics including personal finance and investing. For more insights similar to the article you just read, go to PersonalFinanceBuzz.com [http://www.personalfinancebuzz.com]

Article Source: http://EzineArticles.com/?expert=Rodger_Campbell

Article Source: http://EzineArticles.com/728466

Jump-Starting Your Personal Finance - Achieving Higher Rates of Return
by Rodger Campbell

Buffett: The case for shares. "It will be by far the safest."

Unsurprisingly, Buffett makes the case for investing in shares – the productive capacity of democratic capitalism. He also gives a sense of the best businesses to own. Buffett prefers '‘first-class'’ companies that can keep up with inflation and that also require only minimal new capital to produce their returns. Buffett cites Coca-Cola (NYSE:KO) as one such example.

He says “I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three (gold, cash & bonds and shares) we've examined. More important, it will be by far the safest.”

That’s a critical point – equities are often characterised as risky, volatile and complex (and some companies’ shares can be all three), but when compared to the risk taken by buying assets that don’t sustain your purchasing power, Buffett argues that the safest way to secure your financial future is to swap some shorter term volatility for longer term ‘'purchasing power'’ protection.

Comparing the returns from investing in the three asset classes discussed since 1965.

• $US100 invested in US government bonds would have compounded to be worth $US1336 by the end of 2011. 
• Gold would have far outpaced cash, turning into $US4455. 
• But equities would have done over one-third better, compounding its way to $US6072.

Read more: http://www.watoday.com.au/business/motley-fool/why-buffett-is-cold-on-gold-20120214-1t3vk.html#ixzz1mUyR1s59

The Oracle of Omaha restates the greater fool (note the lower case ‘'f'’!) theory: “the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth – for a while”.