Putting money in the stock market can seem intimidating at first, especially if you are new to investing. After all, the stock market is unpredictable and stocks sometime lose money. However, stocks have many advantages over other investments. These benefits combine to make stocks a valuable part of a balanced portfolio.
Stocks are risky assets. This means they don't have a guaranteed return and sometimes lose money. However, the long-run trend of the stock market has been undeniably upward. Stocks have the highest return of any investment asset over the long term. According to the Federal Reserve, the stock market has grown by an average of more than 10 percent a year over the past 50 years. During this same period, government bonds only grew by 5 percent a year. If you can stomach the market swings, you will see the highest return on your money with the stock market.
The stock market is a huge auction house. Every day, investors are buying and selling their shares. This makes stocks a liquid investment. When you want to cash out, it is quick and easy to find a buyer. Other assets are much more difficult to sell. If you invested in an investment property, it could take months to find a buyer and get your money out. With stocks, you can find a buyer the very next day.
Stocks also delay taxation on your gains. If you buy a stock and it goes up in value, you don't need to file a return on the earnings. You only need to report your stock gains when you sell the shares for a profit. In addition, if you lost money on another stock purchase, you can use the loss to reduce taxes on your other stock gains. If you put your money in an investment that earns interest, like a bond or bank account, you need to pay tax on your earnings each year.
The stock market is closely watched by the entire world. If a company wants to publicly sell its stock, it needs to release its financial statements that show how it is being run. The U.S. Securities and Exchange Commission reviews these statements to make sure they're true. In addition, financial reporters are reporting on stocks day and night. This makes it easy to research your stock investments. Some other investments do not have as much public information, so it is harder to make an informed decision.
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.