Why invest in the stock market?

Is it a good idea to invest in the Stock Market? What are the benefits or pitfalls?
February 2018

Is it a good idea to invest in the Stock Market? What are the benefits or pitfalls?

 
 

You make considerably less by keeping your money in cash – interest rates are low and predicted to remain that way. The days of being able to plant money in a bank account and make a steady 5% per year are over for the foreseeable future. In many cases, savings account rates are lower than inflation, so people are losing money in real terms. People need to think harder about where to put their money if they are not going to see the purchasing power of their savings eroded over time.
 
You could protect yourself against inflation through investing – the stock market provides some degree of protection from rising prices. Company shares offer protection because companies can put up the prices of their products at times of rising inflation, and return that to shareholders through higher dividends and capital growth. This has the potential to preserve your capital in real terms over the long-term, though on the flip side investment values can fall and reduce your capital.
 
You can generate a long-term income stream – it has now become near-impossible to achieve a stable growing income stream through a savings account, but it is possible through investment dividend-paying shares. Not only is the income from these asset classes considerably higher than for a conventional savings account, generating income from different sources also provides some sensible diversification benefits.
 
You help support businesses – it is often forgotten, but shareholders are an important source of funding for companies, helping them grow. This provides employment, tax revenues and helps support the economy as a whole.
 
You might just make money – yes, investments are certainly more volatile than a savings account, and yes, there is more complexity involved, but history suggests that over the long-term people are better off investing in bonds and equities than leaving their money in cash. If you want a decent retirement, you should carefully consider the opportunities that investing offers.

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