Why Take An Interest In The Stock Market As A Saver?
July 26, 2021
The stock market is a financial market filled with both short and long term investment opportunities. Investors can buy and trade their securities there. When stocks and bonds are listed on the stock exchange, their value increases or decreases according to supply and demand.
Equity investments can be a savings solution for those who want to make a long-term investment, for example to prepare financially for retirement.
By investing in the stock market, savers hope to obtain a higher return, in the long run, than that of risk-free investments such as savings accounts or life insurance with guaranteed capital.
In the short term (a few months or a few years), stocks fluctuate a lot and therefore the risk of financial losses is high. It’s common to see stock prices go up or down by 20% or 30% per year.
It is only in the longer term (at least 10 years) that the chances of obtaining an attractive return become more important, provided that the economic and financial environment is favourable, that is to say that the profits of listed companies continue to grow.
Investments in bonds are also risky investments. If they are fixed rate bonds, their value increases if interest rates fall (as in recent years) and falls if they rise.
Can everyone invest in the stock market?
Only savers who accept a certain risk and have a sufficiently long investment horizon can decide to devote a portion of their savings to stock market investments and best investment bonds in India.
Indeed, stock market investments do not offer any guarantee of capital. By buying a share or a bond, investors show solidarity in the event of difficulties in the business.
If the company experiences great financial difficulties, its action may no longer be worth anything. For a bond, the risk is that the loaned money will not be repaid. You must therefore be prepared to lose part of your investment.
Savers accepting this risk should not invest all their savings there. It is only once their risk-free savings have been established that they can consider diversifying a small part of their assets into equities on the condition of not needing this money for several years: at least 5 years, or even 10 years, to reduce the risk.
Initial public offering company stockscan be an important part of your investment portfolio. By owning the securities of various companies, you could increase your savings, protect your funds against inflation and taxes, and maximize your investment income.
It is important to understand that investing in stocks involves risk. As with any other investment, it’s important to understand the risk/reward ratio and know your own risk tolerance.
The long-term return on stocks is generally better than that of cash or fixed income securities, such as bonds. However, the share price fluctuates. Investors might consider a long-term perspective for their equity portfolio, as the impact of stock market movements tends to subside over time.
Tax and inflation can erode your wealth. By investing in equities, investors can benefit from better tax treatment over the long term, which can slow or prevent the negative effects of both of these factors.