How are Stocks Different from Other Investments?

We should practice goal-oriented investing in our lives. A few common financial goals might be like building a retirement company, a child’s future, and more. Sometimes we may also need money to buy random things in life. Needless to say, our monthly savings cannot help us achieve these goals. We have to think outside the box. We cannot rely solely on our savings potential. For what? We need to give more power to our “savings”. Creating savings from our income is the first important step. But stopping here is not enough. We need to increase our savings. How to do? Do it by investing money. Where to invest money? Stocks are the best investment alternative as they can generate maximum return on investment (ROI). In other words, investing in stocks makes our money work more.

Is investing in the stock market complicated?

Yes, investing in stocks can be complicated. Why? Because it is necessary to acquire some skills before launching completely into the stock market. What skills are needed? To answer this question, we need to know what a successful investor in the stock market does differently from others. They have three distinct qualities: 

• First, they have a good business eye. 
• Second, they know how to read and interpret a company’s financial statements. 
• Third, they have the patience to hold their stocks for a long time. 

These are the three main characteristics, find out if anyone can turn into a successful investor. But add another skill to it and one could see a transformation into a professional investor. Knowing a business is key. But the know-how of other competing companies in the industry can offer a definite advantage when it comes to investing. It is not necessary that only someone with a “management degree” can successfully invest in stocks. But it is also true that investing in stocks should be done more carefully than buying a fixed deposit.

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Is investing in stocks worth it?

What is the relevance of this question? On the one hand, we have an investment option such as fixed deposit or debt-based mutual funds. These investment options are risk-free. They can generate a fixed return on investment. So why bother investing in a high-risk alternative like stocks? If invested properly, stocks reward their investors well. The rewards aren’t just about higher yields. It can also tell investors a lot about the business. 

A successful investment in a stock requires its investors to know how the business works. Only a handful of people in this world can claim to be business savvy. Does this mean that understanding a business is very complicated? No, it’s not complicated. Instead, it’s easier than learning skills from a job. But unfortunately, our education system is so structured that a child has little exposure to entrepreneurship.

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What is a Stock?

Not everyone can realize what it really means to buy and own shares of a company. Even fewer may realize that a stock represents a “business currency” of their business. The holder of shares in the company has a right to the profits of the company. Shareholders can sell their holdings and buy back their profits at any time. He or she can also decide to keep his or her shares. During the holding period, the value of its shares will also increase.

Why do investors like stocks?

The kind of return that good stocks can generate, over the long term, far outweighs the lucrative potential of other investment options. But you might be wondering if stocks are so good, why doesn’t everyone talk about them with the same tone. Some people have burned their fingers in the stock market and therefore loathe it. Stock prices can fall or rise significantly in the short term. Those who blindly buy stocks will often face the burden of falling prices. What does blind investment mean? It means not knowing enough about the company and keep buying its stock. 

What to know about the company? 

Two things: 

(1) The company’s financial position is strong or weak and 

(2) The stock price is fair. Those who can quantify the above two will earn high returns on their stocks. The complexity of stock investing gives serious investors a distinct advantage. These people have learned the skill of stock analysis and thus make a profit by choosing good stocks at a fair price.

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What investment alternatives are there other than stocks?

• Mutual Funds

Equity-based mutual funds can generate returns similar to those of stocks. But unlike stocks, people can invest in them without much research. Why? Because the responsibility of individual stock research rests with the fund manager. Mutual funds raise money from many investors. Therefore, the accumulated fund pool is then invested in a number of stocks. Securities are carefully selected to build a portfolio. 

A mutual fund portfolio is made up of a number of stocks. As a result, its net asset value (NAV) price volatility is lower than that of individual stocks. Whether it’s stocks or a stock-based mutual fund, the return on investment (ROI) of both is uncertain. Proper research will lead to a better understanding of future price movements. Ideally, a good mix of stocks and mutual funds would be the ideal match for a retail investor. The weight of stocks in the portfolio will depend on the ability to perform detailed fundamental analysis of the stock.

• Real Estate

For us, investing in real estate means buying a home for ourselves. In India, the culture of buying a home is as early as possible. Read my rental or home buying life. But buying a home for self-employment is not an investment. Even if the value of the property increases over time, a detached home is not an investment. Read more about creating lasting wealth. But unlike gold, in real estate investing, people cannot expect to get an 8% return per year by buying it and holding it for years. Keeping a good one has a price to pay. 

Moreover, it requires deep involvement like paying loans, maintenance, paying property taxes, etc. But more than that, buying the right property is essential. There is a way to buy property. Not following the rules will only lead to poor returns and disappointment. It is also true that liquidating physical assets is not as simple as selling stocks or mutual fund units. Some people have made money investing in real estate. But of course, these are not people buying a property with 70% 80% bank loans. Real estate is an investment that requires a lot of capital. So people use bank loans to finance it. But loans further reduce the profitability potential of the property.

• Gold

Gold is an unofficial alternative currency for the world. This is why the central banks of all major countries hoard gold. The largest gold reserves are available from the United States, Germany, the IMF and Italy. Because gold is a scarce commodity, the supply is limited. However, the demand for this precious metal is increasing. The cause of the increase in demand was the increase in central bank gold reserves. In addition, when people’s purchasing power increases, they also tend to accumulate more gold. 

People accumulate gold as an investment (coins and bars) and also as jewelry. Over the past 30 years, the price of gold has increased by 10% per year. What does 10% profit mean? It beats the global average inflation rate. Mutual funds are also a great store of gold. They offer investment vehicles such as gold funds and gold ETFs. Among retail investors, gold funds and ETFs are very popular. Gold funds and ETFs allow people to buy gold indirectly as an investment. In many ways, investing in gold requires much less effort than investing in stocks. People can buy gold and keep it in the locker. After 1015 years, check the value of gold again. Returns of 8% to 9% per year are almost certain.

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