If you are looking for information about things to consider before investing in the stock market, you have come to the right place. This article will thoroughly discuss five reasons to invest in the stock market.
Here are 5 Reasons To Invest In The Stock Market
In order not to hesitate when you want to start investing in the stock market, here are five reasons you should know before investing in the stock market
1. Stock Value Rises With Economic Growth
People’s income will increase when a country’s economy gets higher and higher growth. So, companies can produce more goods for the community and earn more. As a result, revenue growth will increase profits and ultimately boost the value and price of the company’s shares.
In the period after the Global Financial Crisis or around 2010-2021, the US economy continued to grow at a rate of 2%-3% per year. In that period, Amazon also increased its sales from “only” US$50 billion per year to US$500 billion per year. So it’s no wonder that Amazon’s market capitalization grew 20 times from US$80 billion to US$1.7 trillion.
2. Stocks Can Beat Other Asset Classes
When the economy grows, stocks are a performing asset class that beats all other traditional asset classes. Instinctively, this is because companies can adapt dynamically to their circumstances and take advantage of the opportunity to generate amazing growth now and in the future. This is an attractive promise for investors.
Meanwhile, the performance of debt instruments is more based on the company’s promise in the past to “sufficiently” develop so that it can meet a requirement or obligation. Although the company is developing more rapidly than necessary, bondholders will not benefit. Thus, debt instruments are the same as gold, which is more static because changes influence them in macroeconomic conditions and liquidity.
For example, over the past ten years, Us technology giants, including FAATMAN (Facebook, Apple, Amazon, Tesla, Microsoft, Alphabet, and Netflix), have been fairly agile in expanding their business, especially in terms of launching new products and technologies and their market destination countries.
When economic activities were halted due to the COVID-19 pandemic, the performance of these technology companies enjoyed qualified growth, considering that everyone needed technology products due to the Work From Home policy. As a result, over the past ten years, the S&P 500 and the Nasdaq indices have averaged 20% and 40% annually.
3. Protector Against Inflation
The value of real assets will increase as the central bank continuously prints money. The increase in the money supply will allow investors to pursue real assets whose offerings are increasingly limited. Or it can also be said that there is inflation.
The company that controls the market share will be stronger and may benefit when inflation occurs. This is because, first, the company has close control with the suppliers of raw materials and its employees and can withstand rising costs in the event of inflation. Second, the company also has an easier time burdening the increase in its production costs to consumers to maintain its income level. As a result, its share price will be maintained without being eroded by the impact of inflation.
Conversely, high inflation rates will erode the value of monetary assets, including cash and bonds. If inflation, for example, makes the price of goods rise by 10%, then a sheet of Rp100,000 will only have a real value of around Rp90,000 next year.
4. Potential Profits from Capital Gains and Dividends
Corporations that profit in a certain period can divide their profits to investors in two ways: Dividends and capital gains.
If the company decides to provide dividends to investors, then each investor will receive their share of profit in the form of cash as dividend income.
Generally, companies struggling in mature sectors, or industries whose growth has slowed down compared to other industries, will give most or all of their income to investors. For example, this is seen in companies engaged in the basic needs, financial services, and mining sectors.
A company that is still growing will see an increase in profits. As a result, the company’s valuation also soared and increased the stock price. This increase in the stock price (compared to investors’ purchase price) is capital gains.
Companies with strong growth prospects, such as FAATMAN shares, tend to reinvest their profits to increase the size of their business rather than distribute it to investors as dividends. As a result, this investment in oneself will cause the company’s performance to continue to grow, and investors who own the company’s shares will profit not from dividends but from the value of shares that continue to rise.
Investing in stocks can compensate for the shortfall in investing in debt instruments and gold. This is because short-term debt instruments tend to give a small amount of money and interest from holding, but the asset price is stable or can only rise slightly. Meanwhile, the price of gold rose more so that there were capital gains but did not provide fixed interest at all.
5. Affordable
Every investor can start their wealth-building journey with the Pluang application. You can invest in leading stocks in the domestic capital market, such as PT Bank Central Asia Tbk (BBCA), PT Bank Rakyat Indonesia (Persero) Tbk (BBRI), PT Telkom Indonesia (Persero) Tbk (TLKM), PT Bank Mandiri (Persero) Tbk (BMRI), and PT Unilever Indonesia Tbk through mutual funds or later Indonesian stock products or US stocks such as Facebook, Apple, Alphabet, to Microsoft which will soon be launched in Pluang.
In Pluang, investors can also buy a single US stock with a holding of at least 0.1 shares! So come on, immediately own a single US stake in Pluang!
Source: Pluang.
Clossing
That’s our article about five reasons to invest in the stock market that you should know. I hope it can be helpful and useful for those who have read it.