Over the years, the stock market has generated enormous wealth. However, many novice investors are still hesitant to start investing in stocks. Investing in stocks could potentially give you a high amount of profits and significant losses. However, if you can overcome your fear, stocks have the potential to outperform other investment options in the long run.
Here are the 5 reasons that might change your mind about investing in stock;
1- It puts your money where the value is created
Paper money depreciates in its value every day. When inflation hits the economy, your money will not be worth the same as before. Therefore, people might consider diversifying their assets in gold, silver, or cryptocurrency. These instruments could give you a handsome profit when the price soars above the roof. However, these metals have value but do not produce value.
Great companies use investors’ money to generate value through their products and services. This value has a real impact on human beings and creates a positive economic cycle. That’s why Warren Buffet believes that stock investment will beat gold in the long term.
When you invest in the stock, you buy a productive asset that creates value for its customers.
2- Flexibility and liquidity
Most stocks are traded publicly on a major stock exchange, making them simple to buy and sell. You can buy and sell the stock anytime and anywhere during the market opening.
When the company you invested in goes wrong, you can quickly sell the shares and allocate them to another stock selling at a bargain price. Moreover, nowadays, many securities firms allow local investors to invest in other countries, giving more flexibility and a good opportunity for investors.
3- Best way to stay ahead of inflation
Stocks have historically been a good way to protect against inflation. The stock market’s returns commonly outpace the inflation rate. According to US Labor Department data, the annual inflation rate of the United States is 8.3% in the last 12 months ended August 2022.
Looking into the S&P 500’s 10-year annualized return as of January 31, 2022, was 15.43%. That is higher than that annualized inflation rate in the US. However, investors should invest in the stock for the long horizon to outpace the inflation rate. That way, investors can buy and hold the stock even if the price falls temporarily.
4- The ability to make money in two ways
Stock investing is attractive to investors as they can earn money through capital gain or dividends. Day traders take advantage of short-term trends to earn a capital gain. Meanwhile, the buy-and-hold investors expect the company’s earnings and stock price to rise over time and then sell it at a higher price to gain profit.
Some investors prefer a steady flow of cash. They invest in companies that pay dividends. The dividend could be investors’ passive income or supplement their retirement funds.
5- The ability to start small
Nowadays, many brokers offer individual investors to buy fractional shares instead of 1 lot (100 units) of shares. Now you can buy the stock as low as $1 instead of hundreds or thousands of dollars. However, subject to each market’s regulation, not all brokerage firms in all jurisdictions are allowed to exercise fractional shares.
Despite the good reasons to invest in the stock, keep in mind that investing in stocks is not a get-rich-quick scheme. Make sure you understand how the stock investment works and avoid mistakes in stock investing, so you don’t end up losing. We summarized 10 common mistakes in stock investing that you should avoid.
If you are still unsure whether stock investing is halal or not, don’t worry, there are halal stocks with good performance that you can invest in, for example, Apple and Coca-Cola.
To find more halal stocks, subscribe to the Musaffa Halal Stock Screener. Musaffa Halal Stock Screener gives you a comprehensive halal stock screening report and a cool halal rating feature that could help you to make a halal investment decision.