The world of investing involves a variety of options and motivations. People choose to invest in the stock market for different reasons, but the most universal reason is simply to make a profit. Although the stock market can be intimidating and unpredictable, it attracts so many investors because it provides an opportunity to make more money than just letting it sit in the bank or putting it in a CD.
Return on Investment
In evaluating various investment vehicles, stocks generally produce the highest returns – nearly 10 percent annually on average going back to the 1920s, according to the CNN Money website and CBS Money Watch. Based on that statistic, an investor can often net a higher return on investment by investing in the stock market with careful evaluation and research. Because the market fluctuates in the short term, but generally rises over the long term, investors often find investing over the long term to be best way to match or beat a 10 percent return. Over shorter time frames -- say, over the first 10 years of this century -- returns may run much lower, on average.
An Eye on Specific Stocks
Stock price fluctuations can motivate people to invest in the stock market. If a a stock's price goes down and the dividends paid for each share stay unchanged, the dividend yield becomes higher. The ability to buy shares at a low price and sell them for a higher price later is another strong motivator for many investors.
Ties to a Company
An investor with ties to a company or with a strong belief in a company’s product or services may desire a deeper involvement by investing in the company. By purchasing stock in a company, investors become a shareholders, which means they have a piece of ownership. As a shareholder in a company, an investor may share in the profits – also called dividends. The investor can also participate in shareholder meetings. Individual companies set policies on voting rights and restrictions for shareholders, often using the number of shares owned by shareholders to determine privileges.
Bull or Bear Market
A strong market with an upward trend is referred to as a “bull market” from the way a bull moves its horns upward to attack. A bull market often gives investors a high expectation for the stock market rising. A weakening market with a downward trend gets the name “bear market” from the way a bear moves its paw down to attack. Investors may try to capitalize on the peaks of a bull market or ride out a bear market by continuing to invest regularly when stock prices are cheaper. However, chasing the market can be dangerous. If stock prices have been rising, this does not necessarily mean they will continue to rise. In fact, it can mean the opposite.
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