6 Reasons Why You Should Invest In The Stock Market

What is Stock Market?

A stock market is a place where all of the companies running their businesses offer the investors and traders their stocks or shares at certain prices, either during the IPO (Initial Public Offering) if the company is getting listed in the stock market exchange for the first time or at whatever the current stock price is of a particular company if it was already listed in the stock market. And then, people like you and I can invest our money in that company or those companies to get higher returns on our invested capital amount. 

The purpose of stock market investment or trading is always to earn a profit from the invested capital amount by selling the invested stocks when it reaches your desired gain or value. Sometimes, you can sell stocks even when you don’t own a particular company’s stocks and even when that stock price is falling, that is called short-selling of stocks. However, I wouldn’t recommend the short-selling of stocks, since it’s too risky and this article focuses only on earning high profits from long-term investments in stocks. 

And, it’s not that you’ll always earn profits from the stocks, sometimes, you may end up being in losses, especially if you are a day or a short-term trader, and not an investor. 

Now, you must be wondering, ‘What is the difference between a trader and an investor?’ Let me explain that to you, the trader could be an individual like you and me, who buys stocks of a particular company or companies, and he/she sets a time limit for himself/herself within which he/she expects to earn some profit, but for some reason, if his/her stocks don’t reach his expected price or the price drops to lower than his/her buying price for that stock or stocks, he/she sells those stocks because the time limit set by him/her has already been reached. 

An investor is also an individual like you and me, who invests his/her money in some company or companies by buying their stocks, and lets that money stay there invested as long as he/she earns his expected profit from it. An investor doesn’t have any time limit set. In other words, a trader is always looking for short-term gains, whereas an investor is always looking for long-term high gains.

Now, whether you are a trader or an investor, there’s always some or other risk involved. Because any stock’s price only goes up when many buyers are buying that particular company’s stocks, and the price goes down if many traders are selling that company’s stocks. If there are many buyers in the stock market on a particular day or for a certain period, then it’s called a bullish market, and the buyers are often called the ‘bulls’. If there are many sellers in the stock market on a particular day or for a certain period, then it’s called a bearish market, and the sellers are called the ‘bears’. 

The stock market is a daily battle of the bulls (buyers) V the bears (sellers). It’s never steady, it’s always changing every second, every minute, every hour, every trading day, every month, and every year after year. Sometimes, you’ll see that your invested amount is in profit, and the next moment you may see that you’re losing out on your capital investment.

So, if you are a trader, the risk of losing your money is higher than if you are an investor because you’re only looking for short-term gains as a trader. And sometimes it may happen that you invest your money in some company’s stocks at the time its stock price was bullish, but immediately after you invested your money, the stock price of that company falls and now it’s bearish because most of the investors and traders are selling the stocks of the company you’ve invested your money in. 

There are many ways in which you can invest your money in stocks like Options and Futures, mutual or hedge funds, commodity investments like gold, silver, and bronze, etc., however, in this article, the emphasis is only on ‘Equity Investments’, where the risk of losing your money is less than other aforementioned forms of investment, given you invest your money in the companies which have strong business fundamentals and constant growth rates. Therefore, I’m not going to go into the gory details about what options and futures, mutual or hedge funds, or commodity investments are.  

Once again, this article’s purpose is to shed light and bring clarity on ‘investments’ in stocks rather than ‘trading’ in them. Because as I mentioned earlier, the risk involved in trading in stocks is way more than investing in stocks for longer periods. Now, you may be thinking about the stock market crash. “What happens if the stock market crashes, will I lose all my money?” Well, there’s a significant risk involved in long-term ‘investing’ in the stock market too, but investing in equities is less risky than other types of stock investments. 

The stock markets from all around the world, be it the US stock market New York Stock Exchange (NYSE), the UK’s London Stock Exchange (LSE), Japan’s Tokyo Stock Exchange (TSE), or India’s National Stock Exchange (NSE), are inter-related. If any of these stock markets crash, the others will crash too, because they are parts of the world’s economy. So, there’s a risk involved, the risk of losing your money. But life itself is full of risks and unpredictabilities. You never know what is going to happen next in your life, it can be a good thing, something of your liking, or sometimes there can be failures and disappointments and losses, but there are always comebacks and hope. 

Investing in the equity stock market is somewhat of a calculated risk, but the rewards, in the long run, will be greater than you might have expected. 

Speaking of stock market crashes, the first major stock market crash happened in late 1929 and continued through the mid-1930s when the prices of all of the major companies listed on the NYSE fell drastically to very low levels, and all of the investors lost their money because they gave into fear and sold their stocks and businesses. All of the major companies at the time went bankrupt and the country’s whole economy came tumbling down.

The economies of other countries like the UK, China, Soviet Union, etc., were also badly affected by it back then. Then began the time of World War II (WWII) which made it even worse. The people were out of jobs, there was famine. That period is often termed ‘The Great Depression.’ Well, I’m not going to go into all the deep details about why it crashed and all. The point I’m trying to make here is that the NYSE and all of the other major stock markets from around the world at the time bounced back in a few years. And the US emerged as one of the largest economies in the world during WWII, and it continues to be the largest economy in the world. 

Look where the world is standing now, the developing countries like India and UAE contribute a large part of the world’s economy. The technologies like computers and the internet, and smartphones have taken the charge of the whole world. These are all signs of positivity, prosperity, and hope. The world kept on growing economically and technologically despite The Great Depression. 

Another major stock market crash took place in the year 2008 when all of the major stock markets from around the world crashed with stock prices hitting the lowest of all time, resulting in intense fear of repetition of The Great Depression, but most of the major stock markets recovered in a matter of few months, and the world kept on growing. 

The recent stock market crash was during this recent Covid pandemic, but again, all of the world’s major economies recovered in no time, and the world is building toward a stronger economy together. 

The stock market crash is nothing but a result of fear the investors and traders have and sometimes it could be because of unprecedented events like war or the recent pandemic. Whenever there’s fear, the investors and traders begin to sell the stocks of the companies they have invested in, and then the prices of the stocks begin to fall. When this happens on a large scale and around all of the developed countries like the US and the UK and the European countries, the stock markets crash and the world’s economy goes tumbling down. But again, it bounces back after the fears of the investors settle in, and the investors who stay unmoved even during such major crises are the ones who end up making fortunes for themselves through the stock market. 

As an investor, you should be able to make the right decision whenever you feel that it’s time to buy or sell stocks in the stock market. Don’t worry, you will develop that mentality and all the skills needed to become a good, profitable investor over time, but always remember–patience, trusting your judgment to make the decisions, and keeping your greed curbed should be your formula for gaining profits and high returns from the stock market investments.

Now that you have a fair idea about what the stock market really is, here are some of the reasons why you should start investing in the stock market:

1. High-trending stock market indexes.

Every stock market is measured by an index, it’s some number that represents that particular country’s stock market. For example, NYSE has indexes like the National Association of Securities Dealers Automated Quotation (NASDAQ), Dow Jones, and Standard and Poor’s (S&P). The London Stock Exchange of the UK has an index Financial Times Stock Exchange (FTSE). The Frankfurt Stock Exchange of Germany has an index as Deutscher Aktienindex (DAX), and Japan’s Tokyo Stock Exchange has indexes such as Nikkei and Tokyo Stock Price Index (TOPIX).

A progressive country India’s National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have indexes such as the NIFTY and Sensex respectively. All of these indexes represent all of the major companies listed in the respective country’s Stock Market Exchange available for their stocks’ trading and investing where investors like you and I can invest their money in those companies by buying their stocks. And as their stock prices go higher or increase, your profits will increase. And as their stock prices decrease, the worth of your invested capital in those stocks will go down. All of the aforementioned indexes represent each country’s leading companies which have large market capital and steady turnover and have their business growing year after year for many years as a whole. 

Let’s take a look at some of the charts to understand the market trends of some of the major indexes of the world’s leading stock markets:

As you can see, those indexes show a highly increasing trend which means the market prices have increased in great numbers over the past 5-10 years. All of the leading markets ascertain the fact that the world’s economy has kept on evolving despite the intermittent, sudden stock market crashes. So, this is one of the reasons why you should consider investing in the stock market, but again remember, patience and decision-making are the key factors to getting your investments multiplied in the stock market.

2. Sustainable GDP growth.

GDP stands for Gross Domestic Product. GDP is a measurement used to calculate a country’s total income on yearly basis. GDP is the total market value of goods and services produced within a country each year. The higher the GDP, the greater that country’s economy. The US has had the highest GDP growth in the world for many years. To understand this GDP growth, let’s take a look at some of the charts of some of the countries with increasing, steady GDP growth.

Except for the 2008-recession and the recent pandemic period, most of the world’s leading economies show a consistently growing GDP, which is a strong indicator that the world’s economy is growing steadily altogether.

GDP per capita is calculated from GDP divided by the population of a country. GDP Per Capita is a measurement of average living per person, however, it doesn’t directly imply the average income per person in a country.

3. Returns are higher than any other form of investment. 

If you deposit and save your surplus money in the banks, the banks offer very low-interest rates, whereas, if you invest it in the stock market, after doing thorough research and you remain patient, the returns will be incredibly higher than bank investments or gold or property investments. There’s no fixed interest rate for it, it can be limitless, of course, with a calculated risk involved just like it is in any other form of investment.

4. High dividends. 

When you invest your money/capital in some company listed in the stock market, you become a stakeholder in that company, no matter how much you’ve invested, even if you have invested some thousand bucks, you’re a stakeholder in that business. And if that company has consistently growing business in terms of manufacturing goods and expansion of services, that company may offer some bonus or dividend to its stakeholders (investors).

The dividend can be any amount per stock or share decided by that company based on their profit growth or they may give you bonus shares or stocks, e.g. if you have 20 stocks of some company, they may give you 1 free stock for 10 stocks or 5 stocks for your 20 stocks, and in that way, the number of stocks in your portfolio will increase. And if you are a long-term investor who has invested in a company that has consistent, substantial growth year on year basis, the value of your portfolio with bonus stocks will grow too. These dividends or bonuses are given either quarterly or yearly, but again, it’s not fixed how it will be, and whether you’ll get it for sure or not. The companies decide it and notify you about it.

You don’t have to do anything to get dividends or bonuses other than just keeping your money invested in the stocks of that company. The dividends are credited into your bank account or the bonus stocks are added to your Demat (Dematerialization)/Brokerage account — it is a repository account where you do the buying and selling of the stocks of the various companies. Always check the company’s dividend history before investing in it.

5. Diversified investment options in various sectors.

Every stock market has various kinds of companies listed in it like oil companies, IT companies, financial/bank companies, steel companies, consumer products companies, car companies, real estate companies, etc. So, you have various sectors of companies to invest in. There are also categories of large-cap companies (the companies with a market capital value of more than $10 Billion), mid-cap companies (the companies with a market capital value between $2 Billion and $10 Billion), and small-cap companies (the companies with a market value less than $2 Billion).

The large-cap companies are generally well-established ones, and they have been around for many years, and are therefore relatively safe to invest in. Also, some of the mid-cap and small-cap companies with growing business revenues year on year basis can be high-yielding stock investments. However, always do thorough research before investing your money in any company.

6. The world has more billionaires now than ever before. 

According to Wikipedia’s March 2021 List of countries with the most billionaires (derived from Forbes), the world has around 2755 billionaires with the US and China leading the list and a progressive country India ranking 3rd on that list with a total of 237 billionaires. This is a strong indicator that despite the recent market crashes and the pandemic, the world’s economy has continued to grow higher. So, this is one of the reasons why you should start investing now if you haven’t already.

So, these are some of the reasons why I think you should start investing in the stock market. And you don’t need to have billions or millions of capital to start investing in stocks, you can start investing as per your income capacity, but always invest only the surplus amount from your income, and that too after doing thorough research about the company or companies you wish to invest your money in. Dear God! I’ve said this a million times already, but this is a very important thing to remember.

Now, here are a few things you “must” consider carefully before investing in the stock market:

1. Once again, always invest the surplus money of your income, never invest all of your savings only in the stock market.

2. Again, do thorough research about the company or companies you wish to invest your money in like their year-on-year and month-on-month growth rates. Check their market capital which defines the company’s business and worth. Study their balance sheets if you can. Study their stock market charts and what businesses they are in, consider their future business growth factors, etc.

3. Never get frustrated if you see that your invested capital amount shows up in a loss for some time in your trading account. That loss is always virtual until you sell those stocks in the loss. If you’ve invested in companies that are fundamentally strong and have been around for years and have a continuously growing business, with time, their stock prices will recover from such losses and go up, so, you’ll earn great gains and profits over time. Patience is the key to your success as a stock market investor.

4. If you invest, then always set a reminder for the stock price you want your stock to reach or cross. Don’t just invest and forget about it. Always keep a watch on your stock portfolio.

5. Study as much as you can by reading articles such as this, watching YouTube videos, and doing virtual or paper trading/investing (you can google later on how to do stock paper trading/investing, there are many virtual trading/investing options available online) before investing. But don’t just spend all of your time only studying it, you get a real sense of the stock market when you actually start buying stocks and selling them to gain profits, or sometimes even to take small losses. 

6. Never make a decision based on anyone else’s advice. It’s your money and you’ve worked hard for it. So, you take and have full control of it and make your own decisions about which companies to invest in and when to buy the stocks, and when to sell them, of course, you’d always want to sell your stocks in profits. But sometimes, in case something doesn’t work in your favor, be patient or make the decision on your own, so you don’t have to blame anyone else for it.

7. Don’t be too greedy. A little greed is good but when you see you have the expected profit, sell or exit that stock and claim your profit, and then you can again study and invest in the same or other fundamentally strong companies. 

8. Always do your research, I’ve mentioned this a million times already.

Before you start investing in the stocks, you’re going to need a Demat/brokerage account. Nowadays, there are hundreds of stockbroking companies that offer their Demat/brokerage account services, you can simply google about it and choose the one which offers the low brokerage and maintenance charges. Do a little research on it too.

I wish you great success and innumerable profits in your stock market investment journey.

Finally, I would like to conclude this article with some quotes by one of the world’s greatest stock investors, Warren Buffett, 

“Risk comes from not knowing what you’re doing.”

“Never depend on a single income. Make an investment to create a second one.”

“Successful investing takes time, discipline, and patience.”

Disclaimer: The views expressed in this article are my personal views, please use your discretion before starting to invest in the stock market.

The charts used in this article are downloaded from www.hl.co.uk, www.macrotrends.net, and www.msn.com.

Pictures belong to their copyrighted owner.