Why would a person invest in stock in a new company rather then putting it in a secure savings accounts?
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Absolutely great question which means I'll over respond. Here goes!
With the typical savings account, you are lucky to get a return of say 4% on your money. That's not ever going to beat the inflation rate, which means that you actually lose money over the long run because the "value" of the dollar you get back is less than the amount you receive in interest, year over year. Savings accounts are a good place to start saving and good place to place money you might need to get to in 6 months or a year from now. Savings accounts are highly liquid or have "high liquidity" because you can tap the funds anytime you want to, whereas with a Stock investment, which fluctuates in value month over month, if you have to get at the money, you have to sell the stock and you'll pay a commission for the sale AND, the stock might be somewhat lower that particular day than when you bought it. Therefore, a person invests monies they know they won't need to be tapping anytime soon. The key word here is "invest"; an investment is like buying a vacant lot, or a house, which you know or hope will appreciate in value over a period of years at a rate greater than both the savings account interest rate and the real inflation rate.
There are several great ways to "invest" in stocks with a pretty great chance you'll get about a 12% rate of return, IF you have money you won't be needing to touch for the next 5 to 10 years. One way is to buy Mutual Funds. For a young investor who doesn't have a lot of free cash flow, a monthly contribution to a blended fund like Fidelity Puritan Fund, ticker symbol FPURX. The reason it's so neat is because they invest in a combination of conservative, big name stocks, like Pepsi Cola and ExxonMobil and they invest 40% of their investors money in stable bonds. Often when the stock market is in the doldrums, the bonds will rise in value thus partially offsetting the decline in value of the Stocks. Puritan was started in the 1940's and if you look at the lifetime performance of the fund, you'll see it's done really well, to the tune of about 12%. Now it has had negative years, but the secret for the investor is to just sit tight, never sell and let the dividend re-investments buy more and more of the fund year over year. A great way to check on and research investments in Stocks and Mutual funds is Yahoo finance, so go to http://finance.yahoo.com/q?s=fpurx... to check on Puritan.
Another great way to get a much better rate of return on money you don't need to access is to buy solid, high yield dividend paying stocks with growth potential. Some fantastic examples are Health Care Realty Trust, (HR) and American Capital Strategies, (ACAS). Realty Trust stocks like HR are called REITS, (Real Estate Investment Trusts) and they chose that corporate business form to offset taxes because they are typically in high cash flow (rents) type investments. To qualify to be REITS and get that tax break they are required by law to pay out a certain portion of their free cash flow in dividends which are payed to the stock holders.
There are many ways to buy stocks in the stock market per the people who want to sell you stocks or to sell you on investment magazines and such. Many of these services will, particularly if your younger push High Growth stocks. I prefer to invest in them by way of mutual funds because picking the right growth stock is very difficult and your as likely to lose as win. The reason is that high growth stocks are typically young companies and people are betting they will grow in value real fast. Netflix did that, and so did Microsoft 35 years ago. There just aren't very many of those stocks around. I personally think "Growth" investment is dangerous. Some people like to make money "trading" stocks, buying and then selling a few weeks or even days later. That's not really "investing" and I've found that for every stock "trader" who's made money that way, 19 have lost money that way.
Another great way is to invest in company's that pay a "not so high" dividend, but have a great track record of growth. Pepsi Cola (PEP) is a great example. So is Kroger, (KR), and Hershey, HSY. Check the article below: and think, DIVIDENDS FOR THE LONG HAUL. That's called INVESTING! (Oh, by the way, once you've gotten this concept, you'll take the Motley Fool with a grain of salt because they try to please every type of investor).
Better ROI with stock
potentially it has a higher rate of return
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