Why should we invest?
As the influence of inflation makes it more difficult to foresee future price levels, prudent spending and saving strategies become more difficult to implement. Because the purchasing power of the money you have will erode over time, investing it is a long-term approach to gain money. To put it another way, investing is a method of generating passive income.
Aside from that, you can achieve some degree of freedom through investing. Assume you have a bank account with a balance of $100 million and a monthly salary of $15 million. However, if you become ill and must miss one week of work, you will only be paid for the remaining three weeks.
You can start by taking out some idle money each month from your current savings account. Currently, there are many popular investment channels for you to choose from such as bank interest savings, gold, foreign exchange, real estate, and so on, stock investment is one of them. Most investment channels mentioned above provide profits for you in the medium and long term. A small investment every month will create added value, making the total amount of money you invest increase exponentially. And if you take it further, at retirement age, you will be surprised at how much money you make from these investments. Your retirement time becomes much more leisurely and comfortable.
What is stock?
A stock (sometimes called equity) is a financial instrument that reflects ownership of a portion of a company. This entitles the stockholder to a share of the corporation's assets and profits according to the amount of stock they own. "Shares" are the units of stock.
Stocks are the foundation of many individual investors' portfolios and are bought and sold mostly on stock exchanges, but private trades are also possible. These deals must comply with federal restrictions designed to safeguard investors from deceptive activities. They have historically outperformed most other asset investments over the time.
Why should we invest in stock?
Stock is a flexible investment channel: The stock investment channel's versatility makes it a very simple way to participate. This is the primary reason that encourages many people to enter the market. Unlike real estate, you do not need a large sum of money to begin investing. When compared to a house worth $2 billion, buying and selling stocks on the stock market requires only a few million or even a few hundred. You can choose solid stocks to acquire and maintain profit even if you only have a modest quantity of money.
Outstanding liquidity: When compared to another route, such as real estate, which might be quite profitable, it will cost you more money and take longer to complete transactions. When you acquire an apartment or a piece of land, for example, you may not always be able to sell it when you want it. As a result, real estate investment has substantially lower liquidity than securities investment. After cash, securities are the most liquid assets. Because the market is always bustling with buyers and sellers, all of your trades will be completed swiftly by market participants, and your securities can be quickly converted to cash. You can also come and go from the market whenever you please.
The ability to bring high returns: Stock investing can yield great profits if you know how to pick the correct firm with strong growth prospects. When investors purchase stock in a company, they are purchasing a piece of the company. You will have the right to profit from the company and the ability to support or oppose major changes. Investors can sell their assets for a significant profit if the stock price rises to their liking.
However...
Stock investing can yield big returns, but it is not without risk. The likelihood that the investment value would drop, causing investors to lose money, is the risk of investing in securities.
Systematic risk: Market risk is another name for it. Interest rate risk, currency risk, commodity value risk, credit risk, and liquidity risk are all concerns that affect the overall stock market. These are unavoidable risks while investing; investors who purchase stocks in any business face them.
Unsystematic risks: These are risks unique to a particular industry, business sector, or company/enterprise. For example, the aviation industry faces the risk of a plane crash, whereas the marine industry faces the danger of a shipwreck... These are concerns that are not influenced by the market as a whole.
Recommendations
While risk cannot be completely eliminated, investors can compensate for the risks they take with the rewards of profits.
Diversify investment portfolios: Make investments in industries that are unrelated to one another. Unsystematic risk can be reduced by investing in a variety of industries.
Consider the case of two investors. One divides the funds and invests in three real estate, commodities, oil, and gas stocks. The latter, on the other hand, only invests in oil and gas stocks. In the event of a sharp decline in oil prices, the former investor will only lose a fraction of what the latter will.
Focus on long-term investment: Individual investors who are continually following stock price changes hour by hour are prone to letting emotions rule and making irrational decisions. Therefore, in order to limit errors, investors, after choosing a stock they expect to increase in price, should aim for long-term goals and avoid over-monitoring daily price movements.
Compliance with principles and discipline: When buying stocks, investors should set stop-loss and take-profit levels and adhere to them strictly. This prevents both significant losses and profits being taken too soon.
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