"The main purpose of the stock market is to make fools of as many men as possible." Bernard Baruch
The advantage of share investments
If you're in your early 20s, you've got the investor's best ally on your side which is time. Of course, as you get older and more economically established, you should be able to put away more to invest. Simply put, you want to invest in order to generate wealth. It's moderately effortless, and the rewards are abundant.
There are numerous ways that investing in shares can compensate you. I will explain to you the financial returns.
Capital Gains
For instance, if we buy 100 shares at $10 on a certain date and in the future the share price increases to $15, then your shareholding will be worth $1500(100*15), netting you with a capital gain of $500($1500-$1000).
Rights issues
A rights issue is a way in which a company can sell new shares in order to raise capital. Shares are offered to existing shareholders in proportion to their current shareholding. The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares.
A shareholder has a chance to acquire additional stock giving them a preferential rate to obtain these extra stocks. A shareholder may then sell or keep his or her rights. Generally, the announcement of a rights issue will result in a growth in the share price leading to a capital gain.
Bonus issues
A bonus issue is a stock split in which a company issues fresh shares without charge in order to bring its issued outstanding stock in line with its employed capital. The employed capital is the increased capital available to the company after profits. Therefore, a bonus issue can be seen as an alternative to dividends. No new funds are raised with a bonus issue.
Dividends
This is in regard to the proceeds of a company. Dividends are determined on the par value of a share. For example if you procure 100 shares of a company and in the year the company says the dividend is 10%, then you will collect $100 for 100 shares. This is assuming the par value of the company is $10. The calculation is $10*10% = $1 per share.
Other benefits
Short term price fluctuations should be ignored. An investor must watch out for important indicators such as dividends, rights issues and the cash flow or general financial health of a company. The point is not to let the market dictate the public that is buying stocks but to make money through acquisition of shares in excellent companies that are well run. One must keep in mind to capitalize when the market goes berserk. Go in when prices are low and make capital gain sales when the market is on the up.
In periods of inflation, the ensuing climb in share prices counteracts the effects of commodity price rises. Stocks cited on any exchange are extremely liquid and in this significance they can be got rid of easily. However, shares are meant for the long term and usually provide a higher return than trusting the money to a fixed deposit in a bank.
The risks of share investments
The first thing you should do to prepare for investing is to pay down all of your high-interest debt, such as credit card debt. A dollar of debt can speedily compound into couple of hundred dollars of debt. It is vital to note that high-interest debt should be avoided at all costs.
Future is uncertain
Any type of investment carries with it a sure amount of risk. This is due to the future being uncertain. One must face the facts that life is unpredictable. So getting back to the stock market, an investor cannot afford to look at the rate of return on an investment and neglect the latent of its risk.
Risk
The longer term is uncertain because the growth and dividend prospective of the company that has issued the stock can go up or down. The grade of risk differs from investment to investment. When buying shares in a company, the investor is absorbing some of the risk that goes with it. There is no unconditional promise that the financial returns will be lucrative.
Types of risk
Systematic risk also takes place largely from political and economic indecision that give rise to market instability. Threat of wars, disease and any type of government shakiness will have off-putting shock on the stock market. However it must be remembered that there must be a level of risk that an individual should be geared up to take if he or she is trying to be triumphant.
A Final Note
Well it all comes down to one question. How can you become a successful investor? The answer is simple. It is by making investing a part of your daily life. It's not such a stretch; money is by now part of your daily routine. Always remember, pay yourself first and start early as time and compounding interest are powerful.
“The most powerful force in the universe is compound interest” - Albert Einstein
