Top 10 reasons to invest in stocks
|Saving vs. investing|
|What is stock investing?|
|What is the stock market?|
|Top 10 reasons to invest in stocks|
|Top 3 risks of investing in stocks|
Is this your first time investing in the stock market? When you’re a beginner, it’s easy to feel overwhelmed or out of your depth.
Especially when you read up on the potential risks – the whole industry makes it seem like you need to start from an expert level.
But that’s not true, so long as you’ve got honest, experienced guidance, which is where we come in!
Here are the top 10 reasons to invest in stocks, a few cons, and a few tips for investing in stocks for beginners. But first – let’s cover some basic stock investment grounds. YALLA!
Saving vs. investing
Many beginners wonder if they should simply stick to their savings accounts for fear of losing money. And yes – money in the bank gives you that fixed-interest income over time. But because there’s so little risk, your profits are typically meager.
For saving money to make sense, the interest you make needs to be higher than inflation. What does that mean? Well, let’s say inflation is at 4%.
That means, if you were to buy a pair of shoes for $100, you now need $104 to buy the same pair of shoes. That’s inflation.
Unless your bank or savings account is paying you 4% interest to hold your money for you, then you’re basically losing money if it’s sitting there in the bank.
You need to invest it in something that gives you a minimum of 4% return just to maintain the value of your money.
At this point, you’re not even making money – you’re just staying even with inflation.
The FDIC in America says that the interest rate on savings accounts is only about 0.08% APY on average (as of June 21, 2022), and, let’s face it – that’s peanuts.
A savings account may be an excellent method of keeping your money secure, but it won’t exactly turn those one-dollar bills into tens. Ready to learn more? Let’s dive into the stock market for beginners.
What is stock investing?
When we say stock investing, we mean buying and selling stocks through stock exchanges like the New York Stock Exchange and the NASDAQ.
That’s right – folks like you can buy and sell the shares of big or small companies online, which is made possible by the stock market.
Even as a junior investor, you have the option to invest in some of the world's most well-known and profitable corporations, like Apple stock, Amazon stock, Rivian stock, and Airbnb stock.
Or you can go local and invest in Saudi Aramco stock, Anghami stock, EMAAR stock, or countless other MENA-based companies. With the amana app, all of this is only a quick tap and swipe away.
What is the stock market?
When you trade stocks, you buy or sell shares in a particular company.
When someone says they trade in the stock market, they buy and sell shares on one or more stock exchanges that make up the broader stock market.
The most important thing about trading stocks is that investors don’t own actual shares – they’re simply making a profit on the price difference.
Got it? Cool, now let’s dive a little deeper and look at some of the pros and cons of investing in the stock market.
Top 10 reasons to invest in stocks
Now that you know the basics of how the stock market works, it’s time to go over some key benefits of investing in shares.
Here are our top ten:
1. Ride the wave of higher returns
Investing in stocks for retirement or just for a steady flow of income can give you much higher returns than your savings account.
The average annual return of the Standard & Poor's 500 stock index, AKA the S&P 500, has been 10% for years. In fact, the U.S. stock market has long been seen as the best place for investors to make a profit.
Over the past century, it’s done better than all other types of financial securities and even the real estate market. Although higher returns usually also mean higher risk!
2. Enjoy the liquidity that stocks give you
What is liquidity? Liquidity refers to how easy or fast it is to buy or sell stock on the secondary market. If a financial product has high liquidity, you can quickly sell it without paying the big bucks.
Everyone agrees that cash is the most liquid asset because it can rapidly be turned into other assets. Real estate, fine art, and collectibles are examples of things that are a bit trickier to sell fast.
The stock market is pretty liquid. That's because, generally, many folks buy and sell them, so it's usually not too hard to convert them into cash.
However, not all stocks are created equal. For example, you can easily buy and sell most stocks on the UK 100 index.
These are big companies, and people usually want to buy and sell their shares all the time. On the other hand, stocks that trade on the alternative market, which is made of small, budding UK companies, tend to be much less liquid.
3. Diversify, diversify…
Have you ever heard of the expression “don’t put all your eggs in the same basket?” Well, diversification in investment is the same thing.
If you maintain a diversified portfolio of stocks, you could potentially outpace inflation and increase your buying power over time.
Now, what’s a diversified portfolio? In a nutshell, it’s the kind of portfolio you should strive to keep.
A diversified investment portfolio has multiple investments that work together to lower your overall risk of loss.
It means you own stocks from different industries, countries, risk levels, and maybe even a few bonds, commodities, and properties for a good balancing act.
Together, these different assets lower the chance of losing all of your money. Although, the returns from a diversified portfolio are usually lower than when you pick a single winning stock.
4. Because Warren Buffet says so
One of the world's best-known and most successful investors, Warren Buffet, is very much pro stocks. In fact, he has gone on record to say that the only way to make money is to stay invested in stocks.
What does Buffet mean by that? He means that stock prices are always expected to rise over time.
Each month, significant funds are invested directly in the stock market because of 401(k) programs and other retirement plan investments, which usually lift the price.
By the way, there are countless great Warren Buffet quotes on the stock market. For example, “All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.”
He makes it sound so simple, doesn’t he? Although the sentiment is great, we do recommend adding lots of research into the mix.
5. Invest as little as you want
Since there is no minimum amount to open an investment account, you can join the share market with as few funds as possible.
That helps safeguard your savings since you can invest only as much as you’re willing to lose.
You can adjust your funds depending on your investment strategy or after you’ve leveled up your investing knowledge and skill.
You can also choose a brokerage that charges fewer fees to maximize your investment potential.
6. A bit of research goes a long way
Yes – as you can see, stock trading is not exactly a walk in the park. But it’s also not rocket science either. In fact, it can be pretty simple for those with investment experience within other markets, mainly Forex, AKA the currency market.
Once you’ve set up and funded your investment account, you can move on to researching and deciding on a Download amana’s app and visit its learning center now! Although, you should know that even the biggest pros can hit a bump on the road and suffer losses.
7. Enjoy potential stock dividends
What’s a dividend in stocks? A dividend is a payment made by a company to its shareholders. In simple terms, it’s an additional income the company pays investors like you every year.
Suppose you have 30 shares in a MENA company and receive $2 in cash dividends each year. That means you'll receive $60 annually.
That extra income could potentially help you fund your retirement or finance another investment that will help your portfolio grow over time.
However, it’s important to know that dividends are tied to the company’s profits and performance. So, you could hold a company’s stock for three years and not get any dividends if the company doesn’t make profits or decides not to distribute dividends.
If the company’s profit is low, it could still pay out dividends from its profit reserves of last year, but that’s not very likely.
8. Keep inflation at bay
What’s equally beneficial is that stocks can help you hedge against inflation. For example, you could drop a few global stocks into your portfolio if you want to hedge against domestic inflation.
The stock market's returns frequently outpace the rate of inflation. For example, since 1913, the long-term inflation rate has averaged around 3.1 percent a year.
That’s in comparison to a double-digit annual return on stocks. As a result, stocks have been a great way to protect against inflation over the years and continue to be so.
9. Profit from a booming economy
Yep – if the conditions are right and you’ve done your research, you could potentially earn excellent investment returns.
As the economy goes up, so do business profits. And economic growth means more sales, which in turn leads to more jobs.
And as wages rise, so does consumer demand, and that in turn generates more revenue for businesses, which means stronger stocks.
A good understanding of the global stock market and global market news, in general, will help you make more informed decisions.
That’s another reason why you should take a deep dive into our learning center.
10. Enjoy a simple investment process
Investing in stocks—whether global or regional — is a simple process. You can join a brokerage account, work with a financial planner, or even invest online.
It only takes a few minutes to set up your online investing account and choose the stock you’ve got your eye on.
You might even be allowed to invest in stocks through your company if you're a small business owner.
With amana, all you need to do is download our free stock trading app and open your account in a few simple steps.
Then you can dive into zero-commission investing on US shares of companies worldwide—from the US to the EU, the MENA region, and beyond.
Top 3 risks of investing in stocks
Now, we’d be lying if we claimed there aren’t many risks involved in stock trading. Here are some of the cons of investing in the stock market.
1. You’ll need a lot of spare time to do it right
Yep – we keep repeating this, but that’s only because it’s of paramount importance. You've got to do your research before joining the share market.
That includes learning how to read financial statements, diving into annual reports, and analyzing the market news.
Suppose you want to be a successful stock trader. In that case, you should also keep a close eye on the stock market live index because even the best companies stock prices can simply collapse in a market crash, correction, or during a bear market.
What’s a bear market in stocks? That’s when share prices fall, which encourages more selling. Whatever you do – you’ll need the time outside your work hours to do your research.
2. You’ll face tough, mostly corporate competition
Stock trading and the stock market are packed with beginners and professional traders.
But the second of those two groups have the time, the knowledge, the tools, and the resources to invest thoughtfully.
Some analysts say that if there is more competition in the market, high-frequency traders may change how they trade and make more speculative trades, which hurts the market's liquidity.
And that’s not great news for beginners like you.
3. Difficulty controlling your emotions while investing
Because of how volatile stocks are, their prices go up and down every second.
That can make folks like you act on an emotional impulse from fear and/or greed, which results in some terrible decisions.
Many folks buy at the top of the market and sell at the bottom because they invest based on their feelings. You should always keep a calm mindset and be aware of fluctuations and development cycles in the stock market.
#advice_by_amana: Leave your emotions at the door before you enter the stock market, it's a place for calculations and cold rational decisions, invest where you see a profit not where you see something you like.
And that wraps up our top 10 reasons to invest in stocks. Investing in the share market can potentially beef up your investments and boost your savings, particularly if you avoid some of the mistakes most newbie investors make.
That’s why you should level up your trading knowledge with our free investment learning center and take advantage of the amana stock trading and investing app.
Buy and sell thousands of US, European, and MENA stocks with a tap, complete with fractional trading!
Move forward with steady steps towards increasing your knowledge, and when you feel that you have gained enough experience download the amana app. And start your investment journey with us.