OK, so by registering with UK-Analyst.com I will get free stock tips and research on growth stocks. But why should I invest in stocks and shares anyway?
Investing can be a route to realising significant long-term income. However, many people remain apprehensive about the prospect of venturing into the world of stocks and shares. The option of placing cash into a bank or a building society represents a practically risk-free method of observing an increase on your initial deposit. However, what you can earn on your money is strictly limited and it is certainly not an effective way to generate substantial wealth. Similarly, bonds issued by the Government or large corporations have a low risk of default, but that is reflected in the minimal gains that can be obtained.
One avenue of speculative investment lies in the property market. Property, whether residential or commercial, has the scope to rise in value considerably over the period of a few years, generating steady income for its investors. However, there is of course the inherent risk associated with periods of economic downturn, which may send the property market reeling. This is a cyclical investment and right now the odds must be that the peak of the cycle is behind us rather than ahead.
Generally a more popular mode of investing is in equities, also known as company stocks or shares. The most popular type of shares are ‘ordinary shares', which represent part-ownership of the company, reflecting their percentage of the company's total shares in issue. In acquiring shares, investors may gain in two ways. One way of realising a return is through capital gains. This occurs when the company in question has had a successful year, delivering profits that are then reinvested into the business for operational utilisation in the following year. Provided this injection of capital proves effective in achieving profit once again, the company's stock will grow in value as more investors are attracted to it. Existing shareholders would then have the opportunity to sell their equity holdings for a higher price than which they paid. This type of stock is known as a growth stock, and is appropriate for longer term investors who do not require a regular return. UK-Analyst produces plenty of advice on investment opportunities in this area, and it is na area that is traditionally under-researched by major investment houses and the mainstream media.
Another form of income that can be derived from shareholdings is through the receipt of dividends on what are known as ‘income' stocks. A company may elect to pay shareholders dividends from its profit, typically half-yearly or annually. This poses a more attractive proposition for investors wishing to receive a regular stream of income, in accordance with the payment intervals.
Stocks, especially growth stocks, carry a far greater degree of risk than bank deposits and high-grade bonds; however, to compensate for this, they have the potential to deliver far greater returns. But remember that a stock may also lose up to its entire value. It is therefore critical to ensure investment decisions are made after undertaking appropriate due diligence.
Research conducted into the long run return on various asset classes has discovered that stocks are the investment with the greatest potential for capital growth, though at the same time representing the highest risk to principal investment.
A U.S. study by the Schwab Centre for Investment Research (2007) offers an indication of how estimated annual returns on asset classes compare, based on a 20-year horizon:
A recent study by Barclays Capital found that the longer the term of your investment in stocks, the greater your chances of outperforming the major alternative asset classes, bonds and cash. In the UK , 80 out of 97 ten-year periods have seen equities outperform Government bonds.
In a separate study conducted in 2007, Barclays found that the UK average annual return from equities is 13.8% compared with 11.6% in the U.S. There is of course no guarantee that equities will generate a positive return over any length of time; however, the study also concluded it is unlikely that negative returns would result in the long-run.
With regards to the property sector, it was calculated that capital appreciation yields were around 6%, while the Buy-to-Let index showed that total annual returns on properties purchased one year ago peaked at 10.3%. However, the UK housing market slippage which started at the end of 2007 following several years of buoyancy demonstrates the risk property investors are exposed to. The state of the property sector is loosely connected to the prosperity of the economy. However, a deceleration of economic activity and correlated sapping of consumer confidence do not necessarily translate to a negative impact on equities. This is a key advantage that equity investment holds over property.
Knowing what stocks to invest in, when to invest and when to sell, are obviously imperative to obtaining a return. This may appear to be a daunting challenge for a newcomer to the world of equities. Many investors reap the benefits of being able to identify attractive investment opportunities. However, you don't need to be a shrewd operator in the financial markets in order to follow suit. UK-Analyst.com boasts an array of industry experts, conducting thorough research into companies that may present such appeal. Comprising the inside line on growth stocks, delivering the key news on major stock market companies, and bringing you top investment advice and tips daily, UK-Analyst.com is the ultimate source of ideas for investors.
It is never too early or too late to begin investing, but it is THE right time to sign up for FREE to UK-Analyst.com to begin receiving quality investment information and free stock tips - right now.