Stocks |
|
When you purchase shares in a company, you are effectively buying a part of that company and therefore becoming a part-owner. This ultimately means you share in the company's performance in the form of profits which can be disbursed to you as dividends. Stockholders can also benefit through the generation of capital growth through the value of the portfolio increasing in value.
The company you are investing in benefits by using your money and that of other investors to finance its business operations and expansion, without having to borrow money. Stocks have two types of valuations. One is a value created using some type of cash flow, sales or fundamental earnings analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for (in other words, by supply and demand). Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks. An Investor is required to understand the mechanics of how the stock market operates. A historical perspective of how the stock market has behaved in the past is an excellent educational resource for further study.
|
"I believe the future is only the past again, entered through another gate"
- Sir Arthur Wing Pinero, 1893 |
|
|
Capital Growth Benefits
Although past performance is no indication of future performance, history dictates that the Global stock market has outperformed other investments over the longer term. |
|
Courrtesy: ASX |
|
Tax Benefits
The performance of shares becomes even more attractive when tax benefits are taken into account. Where companies have already paid tax on their profits, tax credits known as franking credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable.
|
|
Liquidity
You can transact shares with ease. You can sell shares and generally have access to your money in no more than three days. Other traditional investments often take longer to sell. Liquid investments have the benefit of greater flexibility in regards to your investment philosophy.
|
|
Diversification
The global stock market arena offers a wide variety of companies to invest in. Companies are involved in a wide range of industries covering most sectors of the economy including financial services, industrials, resources and healthcare. By investing in a range of companies you can spread your risk.
|
|
What risks are there?
Trading a security incurs the risk of loss as well as the prospect of profit. Traders should therefore carefully consider whether such financial stock market investments are appropriate in light of their individual financial circumstances. The stock market can experience volatility in the short term. Individual stock prices can go down as well as up. It is important to monitor your stock's performance, and to regularly re-evaluate whether they continue to be a good investment for you. An astute understanding in technical, fundamental and volatility based education is essential in order to trade profitably whilst actively managing risk.
|
|
ASX Share Ownership Study
|
|
|
|
|
