Posted in Finance Articles, Total Reads: 3240
, Published on 07 June 2011
It is a proven fact, without doubt, that shares and equities are one of the best long-term investments in the financial market .They are said to be a “get-rich-slow scheme”, if done wisely and patiently. In fact, they surpass and over-perform property, Corporate or Government Bonds and other types of assets and investments. As far as ‘speculation’ or short-term buying and selling of shares is concerned, a greater risk is involved as share-prices fluctuate frequently. But in t he long term, they generate good results i.e. if money is invested in shares for 10 to 20 years, it is a more rewarding investment rather than investing for a year or so.
Two types of returns namely annual income and long term capital growth are provided by shares to the investors. Mostly dividends are paid bi-annually as rewards to the shareholders by a company if it in profit and has cash in bank after satisfying all its obligations. The more profitable a company, the higher is the dividend payment. It is then considered a good investment which results in the rise of share prices.
Companies that pay generous dividends are known as income stocks. Since dividends are paid twice a year, it becomes like a regular income for the investors. Some companies use money for general corporate purposes like paying rents and wage bills, for R&D or for buying equipment and machinery and also to pay dividends to the investors on a regular basis. Companies which are at an early stage of development and expansion, plough in their profits back in to the business. They are regarded as growth businesses because investors invest in them in anticipation of a future growth and good returns. But despite short time fluctuations in the developmental stages, share-prices increase over a length of time as and when long term capital growth is achieved.
All types of investments carry volatility or risk but the risk involved in investing in shares is reduced by investing in several quality companies for a longer duration rather than for a short term. This is called diversification of the portfolio as it spreads money across a range of investments and ensures stronger returns. Shares are advantageous over other investments because they are easy to understand besides being tax effective and liquid in nature. They provide better returns in the long-term. Most importantly, it is comparatively simpler to access money and buy, sell or redeem shares as compared to owning or selling property. Similarly, one can buy or sell a part of the share-portfolio which is not possible in the case of property. Shares can be bought for an amount as little as Rs500 to start with, if one does not have money to make a large investment.
But on the contrary, shares may decrease in value if invested improperly or for speculation. Therefore the safest bet is to invest with a diverse portfolio of quality share for a long term.
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