Why Is Investing in Stocks Important?
The history of the stock market can be traced back 200 years. In 1792, a group of 24 merchants gathered together to form the New York Stock Exchange. The forming of the New York Stock allowed investors and companies to work together.
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Appreciation
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Investing in a publicly traded company allows you to become a shareholder of a company. In doing so you can take part in market appreciation. Historically the stock market has outperformed other traditional asset classes like cash or bonds, making stocks a good investment.
Dividends
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Blue chip companies have paid out dividends to investors throughout history. Dividends are paid out when companies are no longer looking to grow aggressively and still want to attract investors. Dividend payments, which are usually paid out quarterly or semi-annually, allow investors to receive a predictable income stream.
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Inflation
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Stocks are a great way to hedge against inflation. If you invest in a traditional fixed income vehicle, which can pay 6 percent, and inflation is at 3 percent, you are losing about 3 percent in buying power. Owning stocks can help manage this risk, through greater returns.
Taxes
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Whenever you sell a stock, you have to pay taxes. Standard tax rates can be quite high. If you own stock for more than one year, you can get favorable tax treatment, making owning stocks a good idea to earn income and reduce tax liability.
Societal Benefits
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Investing in publicly traded companies helps companies grow and stay competitive. When a company is successful, it hires more people, is more profitable and pays more taxes. In doing so, these companies help fortify our economy and help us compete on a global level.
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References
- Photo Credit profit/loss image by Warren Millar from Fotolia.com
