The Advantages of Being a Stockholder
Building a balanced portfolio is important, and stocks can play a big role in that portfolio. Investing in the stock market carries a number of benefits, and understanding those advantages can make your investment decisions smarter and more profitable. Whether you invest for income or strictly for growth, adding stocks to your balanced portfolio can make a lot of sense.
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Current Income
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If you choose a stock that pays a dividend, you can enjoy a steady stream of income for as long as you hold the shares. The dividends paid on the stock are paid on a per share basis, so the more shares you own the more money you receive. Retirees can use dividend paying stocks to supplement their retirement and Social Security income, while those who do not need the current income can reinvest the money into buying additional shares.
Potential for Growth
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When you buy a stock, you can participate in the future growth of that company and benefit when those prospects are good. A number of things can cause the share price of the stock to rise, including new products coming to market, good news about the company and positive earnings news. As an owner of those shares, you can benefit when the stock price goes up.
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Preferential Tax Treatment
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If you hold your stock for at least a year and a day, you are eligible for a lower tax rate when you sell it. If you make a profit on a stock you have held for at least that long, the highest tax rate you will have to pay is 15 percent. This rate is current as of the time of publication, and it is subject to change in the future. If you lose money when you sell the stock, you can write off that loss on your tax return, using it to either offset capital gains elsewhere in your portfolio or reduce your taxable income.
Direct Ownership
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When you purchase a share of stock, you become part owner of that company, along with all the other shareholders who own stock as well. Your position as a part owner of the company means that you can vote in the annual shareholder meetings and have a hand in electing the board of directors. As a shareholder, you also have the right to vote on various initiatives and proposals the company would like to implement.
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References
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