Investable Assets: Stocks

Stocks are an extremely simple type of investment.

When you buy stock, you are also buying an ownership stake in a public listed company. A public listed company is a company whose stocks can be freely traded on the stock market.

If the price of a stock goes up, you can sell it for a profit. However, investments have risks. Generally, the higher the risk is, the higher the reward is.

If the company invested in does not perform well, the stock price drops or falls in value. The primary reason most people buy stocks is to generate a long-term return on interest(ROI) that exceeds that of other prominent asset classes, such as bonds, real estate and commodities.

Before investing, you should study a company’s growth tendencies and potential for growth. You should also check how the company pays dividends to its investors.

According to Warren Buffett, people should buy and hold stocks for several decades instead of selling and repurchasing them constantly. At a minimum, a prospective stock should be one that an investor would own for at least 10 years.

There are lots of pros and cons of long-term investing in stocks. For long-term trading, you do not need to follow up on the stock market on a continuous basis and you can focus on future plans. Long-term trading and investing help you take advantage of the feature of compounding, i.e., growth of investment through interest earned on both, the principal amount and accumulated interest over a period of time. You can also save money on taxes by trading in the long term. However, a certain amount of capital is blocked for just one stock for a long time. Long-term trading also requires a lot of patience.

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Author

Siddharth Rath