Everyone, including you, wants to build sustainable wealth in the long term. The starting point is your savings, but it is never enough, especially if you plan to create real wealth.
Once you have saved enough money, the next thing you need to start thinking of building is an investment portfolio. While there are many potential places you can invest your money in, the stock market is one of the most popular investment avenues. It is probably the oldest of them all barring real estate/lands.
Owning stock in different firms – also called equity by some – can be a valuable part of your investment portfolio. It is an excellent way to maximizing your savings. Aside from maximizing savings, here are four other key reasons you should invest in the stock market:
1. Build Wealth
The primary reason for investing in stocks is to build wealth and grow your savings exponentially. In the long term, most stocks rise in value. It doesn’t mean you won’t experience the occasional dips, but overall your stock value will tend to increase over time.
It is critical when picking stocks that you invest in stable firms. These firms are not only sustainable businesses but can weather most of the economic headwinds that occur now and again. To also protect your investment, ensure you invest in forms across different sectors. These sectors all have different growth rates and keeps your portfolio balanced.
2. Access Loans
Investing in the stock market builds up wealth, but it can also come in handy if you need liquidity for your business. When you take loans against stock, you get a securities-based loan. Depending on your provider, you can access between 50% – 95% of your stock value.
Some providers won’t also need a credit check. However, as with every other loan, you’ll need to pay interest. Your loan provider also has the power to decide which of your stock assets are eligible for use to collect the securities-based loan.
3. Protect against Inflation
Cash in the bank is prone to the whims and caprices of inflation. If you kept $5000 in an account between 2015 – 2020, it most likely won’t be worth what it was worth in 2015. Over time, any cash you have loses value due to inflation.
Inflation rates can swing wildly depending on government policies and economic headwinds. Still, any money you keep in cash is guaranteed to lose value in the long term. Investing in stocks not only protects your currency from the effects of inflation but also guarantees you returns despite the volatility of the economy.
4. Protect against Tax
It’s okay to pay taxes, but sometimes taxes can erode most of the profits you make on a business venture. Stock investments provide you a legal way to pay as little taxes as possible. There are certain types of retirement accounts (such as the Roth IRAs and Roth 401(k) accounts) that are tax-free and allow you to avoid paying taxes on your investment.
The more money you make on your stock investments, the more critical it is for you to take advantage of these sorts of accounts. Using these accounts can mean a massive difference to the amount of money your investments make in the long term.
Investing in stocks does have its benefits in the short term and long term. However, it is fraught with risks. Like every other investment avenue, you have to be clear about your approach and your risk tolerance levels.
Once you are clear about your stance with this, you are ready for securities investments. Happy investing!