For as long as share markets have existed, there have been multiple concerns regarding the viability of such financial instruments. What benefits do these channels offer? Are there any risks involved? Questions like these have plagued veteran investors and beginners alike.
Yet, with a bit of research and individual discretion, investing in share markets is lucrative and incredibly secure. Moreover, these securities offer some of the highest returns compared to others.
This article will list some of the perks associated with such financial tools. More importantly, there will be a quick examination of three critical components you need to consider before diving into this space.
Let’s get started.
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What are the Advantages of Investing in Share Markets ?
While complete control and an in-depth understanding of market movements will come over time, investing in share markets bears some immediate benefits for almost everyone.
From inflation protection to enhanced financial security, here are just a few of them:
1. Secure, Accessible, and Direct Control Over Organizational Direction
One of the most appealing factors of the share market is that it is accessible to almost everyone, regardless of their financial acumen or resources. You just need to have a Demat account. This is especially true when it comes to smaller corporations that have the potential to expand.
In addition, when you purchase shares in a specific company, you automatically gain fractional ownership. And depending on the type of shares you buy, you also have the opportunity to influence the organization’s direction.
These types of securities are usually known as common stocks or shares. While most businesses typically reserve them for upper management and early investors, some corporations offer them to the general public. As such, having voting rights in a start-up or a Small-to-Medium Enterprise (SME) can give you considerable control in protecting your investments during market volatility.
Moreover, all exchanges and market activity are regulated by a governing authority. For example, the Securities and Exchange Board of India (SEBI) monitors and oversees trading in India. The Securities and Exchange Commission (SEC) does the same in the US. This deters fraudulent financial activity and safeguards the interest of the investors.
2. Hedge Against Inflation
Investing in the share market will protect you against inflationary pressure in two ways.
First, all companies will pay dividends to their shareholders. This is merely a type of compensation that corporations distribute among investors. Often, it will be in the form of direct cash payments or other securities, such as additional shares.
Nonetheless, unlike individual purchasing power, inflation has an inverse relationship with dividends. Let’s understand this better with an example:
Product X is priced at 500 USD. Due to rising inflationary pressure, the cost of Product X is incrementally increased until it reaches 1000 USD over the next five years. Now, unless the manufacturer is forced to cut back significantly on their profit margins during this period, the revenue they generate will mostly remain the same.
As such, the cash flow in this instance will remain consistent, despite the fluctuation in actual monetary value. Consequently, your investment in the company that sells Product X remains protected during financial turmoil.
Second—directly related to this— is how dividends grow over time. For instance, think back to the last gadget you bought. If you remained faithful to a particular brand, you would have noticed the rising prices with each new model. Now, the investors in that brand have nothing to do with developing the latest iterations of the accessory or gadget. Yet, they are still benefitting from the profit margins they bring.
3. Unparalleled Liquidity & Flexibility
Liquidity refers to the ease with which you can convert an asset into direct cash without lowering its market value. While there are other aspects attached to the concept, this serves as a basic definition to measure how much you gain from a particular investment channel. Put simply, the more liquid a specific asset is, the better it is for you.
And, incidentally, shares are one of the most liquid securities in the market. This does not mean that they are unaffected by economic conditions. So, in some cases, investors can find it challenging to dispose of their portfolio, especially if the company is under public scrutiny or undergoing a rough financial patch.
One tip to avoid such issues is to start with small investments and gradually build them over time. That will help stave off some of the pressure that comes with selling off a large number of shares. In addition, it will enable you to gauge whether the chosen corporation will be profitable in the long run, allowing you to pull out when needed.
This should not be overly difficult to execute, considering all shares are reasonably accessible depending on the corporation’s stature.
4. Increased Financial Security
As mentioned earlier, dividends tend to grow gradually. Due to this, your initial investment offers significantly higher returns over a designated period. And if you have researched the corporation’s past and current financial trajectory, this can help you secure your personal goals, including having a dedicated retirement plan or even educating your children in premier institutions.
The most effective way to navigate this is to diversify your portfolio. So, instead of purchasing securities in one specific sector, spread your investments over multiple verticals. Historically, technology, telecommunications, and industrial commodities, like oil and gas, have been the most profitable markets.
Still, it all depends on your preferences. If your research tells you that a particular industry is on the verge of experiencing a boom, go with that. It also helps to employ a long-term strategy instead of looking for short-term gains. In other words, avoid investing in the share market for a quick turnover. Instead, find out the best shares to buy for long term and go for a buy-and-hold approach.
What Should You Consider Before Investing in the Share Market ?
While there are definitive advantages to investing in the share market, you still need to consider a few factors before you start doing so.
For one, set your financial goals. So, if you are planning for long-term monetary growth, which typically involves a 10-year strategy, it would be best to opt for low-risk shares. Conversely, those looking to make a quicker turnover can go for securities with moderate risk, given that they conduct the appropriate research.
It also helps to evaluate a corporation’s financial performance and market dominance in relation to its peers. This will enable you to choose a company that is, quite literally, at the top of its industry.
For example, Microsoft and Sony are the biggest names in the video game sector. And considering their recent acquisitions of multiple development and production studios, it is evident that both organizations are looking to monopolize this market. An investor who wishes to enter this space must ask themselves a simple question: Which of the two will dominate the other in the next 10 years ?
Finally, and this is the most critical element, you must pick an investment platform that aligns with your financial objectives. Choice India is an excellent example here. With one of the lowest brokerage charges in the country, the platform offers potential investors access to multiple markets, including shares, bonds, and mutual funds.
Final Thoughts
Very few investment opportunities offer the same potential as share markets regarding personal financial growth. However, as implied earlier, it is crucial to exercise some discretion.
So, conduct a thorough market analysis before you decide on any specific company. If you cannot grasp the subtleties, you can enlist the help of someone you trust. It is also best to build your portfolio gradually over time. This will help you avoid unnecessary risks while enabling you to accommodate unexpected market turns.
There is even a dedicated avenue that delivers in-depth market insights to ensure your investment strategies remain fool-proof.
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