It doesn’t matter if you are a moderate or aggressive investor, investing in stocks is the best alternative for your portfolio to generate higher returns.
People who decide not to invest in equities generally have one of two excuses: they don’t have ‘enough’ money or they are afraid of losing their savings. If you fall into the latter category, you are not alone. In America, only one out of every 100 people has its assets invested in stocks or investment funds. However, neither of these justifications makes sense.
These are some reasons why it is good to invest in the stock market, no matter what your investment profile is.
The stock market has always been volatile, but it is true that if you invest your assets on a long-term horizon, you cannot lose everything, even when you go through a major recession. But if fear is what has stopped you, these benefits of investing in stocks will change your mind.
- The stock market has a history of going up and up (even after falling)
Keep in mind that investing in stocks is usually risky due to the high volatility of the market, however, if risks are managed well, the investor can take advantage of the stock market to secure their financial position and earn money.
One of the main benefits of investing in the stock market is the ability to generate higher returns. It is proven that over time, the market tends to rise in value, even though individual stock prices go up and down every day.
In economic downturns it is quite common to see stocks fall at least 10%, however, these market declines do not tend to hurt investors who have long-term investment strategies such as value investing and momentum investing. If you need more insights on these two strategies, you may check out this whitepaper on value investing vs momentum investing.
For example, if for 20 years you had invested $10,000 a year in an investment portfolio consisting mainly of shares indexed to the S & P / BMV IPC of the Stock Exchange, at the end of the period you would have accumulated more than half a million pesos. That is, your equity assets would have given you a return of more than 6,800%.
Also read: Why You Should Opt for Online Trading
- You need actions to overcome the effect of inflation on your portfolio
The value of money is not constant, inflation means that your money, which has a purchasing power of $100, only allows you to consume the equivalent of $92 in two years. If you put it to sleep or just hope it yields you on a banknote, you will most likely lose real value.
To avoid this loss, it is better to invest in an asset that generates real returns, such as stocks. While they typically have an inherent risk of volatility, stocks have historically outperformed government bonds and any banknotes.
- You can always diversify to hedge against ‘risk’
If you don’t know much about company stocks, just keeping your equity in these assets can cause you a lot of stress. At some point of volatility, you can react and affect your investment. Therefore, talk with your financial advisor about what other assets are in the market to diversify your portfolio and reduce ‘risk’. Remember that a diversified portfolio offsets the risk inherent in certain assets over a long-term horizon.
