Why Young People Should Invest in Stocks
The age-old question of whether young individuals should invest in stocks has always been a matter of debate. However, in the face of low bank interest rates and the uncertain job market, stocks offer a more appealing option for wealth creation. This article examines why investing in stocks is not only smarter but also more beneficial in the long term.
Understanding the Stock Market
Investments come in many forms, including traditional bank and non-bank fixed deposits (FDs), Public Provident Funds (PPF), Social Security Savings Scheme (SPPS), Mutual Funds, precious metals like gold, and real estate. These options vary in their benefits and risks, but behind these diverse investment options, one common element stands out: their potential for generating substantial returns. Among these choices, stocks are often viewed with apprehension. However, it is important to note that stocks are a legitimate and often lucrative investment option. They provide liquidity, transparency, and the potential for wealth creation, all of which can be harnessed through strategic and patient investment.
Why Banks May Not Be the Best Option
Current interest rates are incredibly low, with bank account yields ranging from 0.01% to 1.75%. This indicates that traditional savings options like ordinary savings accounts, current accounts, and even online investment accounts offer very little in terms of returns. For instance, the interest on ordinary bank accounts is often just 0.1%, which means that these accounts merely preserve your wealth without adding much value. On the other hand, the returns from stocks can be significantly higher. Over the last year, many individuals have earned dividends from ordinary stocks ranging from 3% to as high as 10%. Moreover, property fund ETFs have also provided impressive returns.
Stocks vs. Property and Fixed Deposits
While property and fixed deposits are stable investments, they often come with geographical limitations and potential liquidity issues. In contrast, stock investments provide flexibility, allowing you to sell your shares quickly if needed. Additionally, the stock market offers opportunities for capital gains, which can contribute to overall returns. Furthermore, the stock market is more responsive to economic changes and trends, making it a dynamic investment platform.
Real-World Examples and Returns
The stock market has shown remarkable performance in recent times, especially during events such as the COVID-19 pandemic. For instance, sectors like pharmaceuticals, health care, FMCG, and telecommunications have shown resilience and growth. Companies such as Apollo Hospitals, Lalpath Labs, ITC, Dabur, Hindustan Unilever, Aurobindo, Glenmark, Sun Cipla, Dr. Reddy's, Star Healthcare, and Astec Life, Jubilant Life, IOL Chemicals, as well as Reliance, Bharti, and Idea, have delivered returns ranging from a minimum of 15% to over 250% within just a few months.
These examples demonstrate that investing in the right stocks can yield substantial returns, particularly when compared to low-interest bank accounts and other fixed investments. The key is to be patient, conduct thorough research, and invest in fundamentally strong and value-driven companies.
Conclusion
Investing in stocks is not a form of gambling but rather a disciplined and strategic approach to wealth creation. Young people should consider stocks as a smart and effective tool for managing their finances. By understanding the dynamics of the stock market, one can make informed investment decisions that lead to steady and lucrative returns. The uncertain employment landscape further encourages long-term investment in the stock market, as it provides a level of security and growth potential that other investment options may not.
Invest wisely and confidently. The future is bright for those who embrace smart investment strategies.
References
[1] Financial Journal Reports - Stock Market Performance During Pandemic [2] ETF Returns Data - Various Property Fund ETFs [3] Company annual reports and financial data