Stocks can be a good part of your portfolio of investments. Owning stocks in different firms can help you build your savings, protect your money from inflation and also taxes, and get the most out of your investments. When investing in the stock market, it’s important to know that there are risks. As with any investment, it helps to know how risk and return work together and how much risk you are willing to take.
Let’s look at three good reasons to put your money into stocks.
Build
Long-term returns on stocks have been better than returns on cash or investments with fixed income, such as bonds. On the other hand, stock prices tend to go up and down over time. Investors may want to look at their stock portfolios from a long-term point of view because stock market fluctuations do tend to even out over time.
Protect
Taxes and inflation can hurt your wealth. Long-term, investors who buy stocks can get better tax treatment, which can help slow or stop the bad effects of taxes and inflation.
Maximize
Some companies give dividends or other special payments to their shareholders. These payments can give you a regular income from your investments and also boost your return. Also, the way Canadian stocks are taxed can leave you with more money.
Benefits of Various Stocks
Investors can get different benefits from the two main types of equity investments listed below.
Shares held by all
Common shares are, you guessed it, the most common type of equity investment made by Canadians. They can:
Capital increased
Over the period, the price of a stock will go up or down. When it goes up, people who own shares can sell them for a profit.
Earnings from dividends
Many companies give their shareholders dividends, which can be a tax-efficient way for investors to make money.
Voting privileges
By having the right to vote, shareholders have some say in who runs the company and how.
Liquidity
Most of the time, buying and selling common shares is faster and easier than buying and selling real estate, art, or jewellery. This means that investors can quickly buy or sell their investments for cash.
Tax benefits are available.
Dividends and gains on investments are taxed lower than wages and interest from bonds or GICs.
Stocks with higher priority
Investors can get the following from preferred shares:
A steady source of revenue
In most cases, preferred shares come with a predetermined dividend payment that has to be made before any dividends are distributed to common shareholders. This is a requirement.
Earnings went up
Most of the time, dividends on preferred shares are higher than on common shares. (Note: Dividends on preferred shares are taxed the same way as dividends on common shares, which is a good thing.
Variety
There are many different preferred shares, and each has its benefits. Some allow dividends that haven’t been paid to build up, while others can be turned into common shares.
The Good Things About Dividends
Dividends are a mechanism for businesses to share a part of their earnings with their shareholders. Dividends are generally paid out every three months in cash, but not all companies do this. For the model, firms that are still growing might decide to put their profits back into the business to help it grow.
Dividends can be good for investors in several ways, including:
Returns
Stocks that pay dividends can give you a higher total return on your investment.
Volatility
Dividends can make the stock price less volatile by helping to keep it steady.
Income
Dividends can help investors make money from their investments.
Stability
When a company manages its cash flow well, dividend payments tend to stay the same or grow, when a business is stable and makes more money, the share price increases over time.
Taxation
Dividends in Canada are taxed at a lesser rate than bond and GIC interest income.
Convenience
The progress of technology has changed every part of modern life. Stock exchanges are also taking advantage of new technologies to make things easier for investors.
All trades are made on an electronic platform to give investors the best investment opportunities in a public setting. Brokerage service providers also offer online share trading, which makes investing easy because investors can place orders from the luxury of their homes or offices using a computer.
The Demat account makes it easier for investors to hold all the products in their investment portfolio electronically in one place, making it easier to track and monitor their performance.
Even though there are many benefits to investing in stocks, investors must also be careful when making decisions. Before investing, people should learn about the stock market basics and research to reduce risks and increase returns.
