Everyone has a natural leaning towards certain investments. Bonds, options, real estate,
gold, or even invest directly in stocks… whatever it is for you, you probably do it because you’re very comfortable with it.
And as soon as you think of something outside of that sphere, you might say “oh, no,
I’d never invest in that, because of [insert compelling reason here]!”. My own natural habitat for
investing is directly in stocks as opposed to mutual funds or exchange traded funds.
I know them well, my career has taught me skills suited to investing in them,
and there are a number of reasons why I think they are a brilliant way to invest.
But tell me that real estate is a great investment (which I know it can be!), and I will agree with you. There is no single winner. As times and seasons change the best performing investment channels too keep changing.
So with that in mind, if you’re someone who says “investing directly in stocks
is definitely not for me!”, here’s a few reasons why it just might be worth considering more closely:
There’s absolutely no maintenance required. No portfolio manager required. These little portions of businesses you own are completely self-suficient. You don’t even need to check in on them very often (in fact, it’s probably better if you don’t). I love seeing my shares grow, and knowing I have to do absolutely nothing – other than avoid making stupid decisions, such as selling out on a whim.
No ongoing expenses
Once you’ve paid your small brokerage fee (consider Zerodha for the lowest fees in India), that’s it – no fees or expenses of any kind to maintain your investment. Not even Index investing can boast this. It’s wonderful to watch a small investment become even larger, without a single extra rupee coming out of your pocket (unless of course, you decide to sell).
The best long-run returns
Stocks have historically provided the best returns of any major asset class over the long-term. Gold is a close competitor.
Sure, you might be taking on a little more risk for these extra returns, but risk really just means fluctuations in prices. If you don’t check your share prices often, if you have selected stocks you understand and have a genuine long term view, this ‘risk’ shouldn’t really bother you.
There will always be market crashes, but preparing in advance and knowing what you’ll do (and not do, e.g. sell!) when it occurs is the most important thing.
You’re investment adds value to the world
Collectively, businesses grow only by delivering greater value to the world and constantly innovating. And when they do that well, their share prices grow.
On the other hand, investing in something like gold doesn’t do much for the world – you’re only hoping someone will pay more for the exact same thing you own in future. It’s much more rewarding knowing that some magic is being created within the business you own.
And when you do invest directly in the stock of a company you believe has great prospects, and it does take off, it’s a pretty exciting feeling. It can make you proud of your work in deciding to invest. It might be not quite the same as seeing your own children grow and develop, but can be rewarding in its own way.
Mutual funds or exchange traded funds or any other investment channel does not give this same satisfaction.
Infinite combinations to diversify
All stocks (and their underlying businesses) are different, and there are literally infinite types of portfolios you can create to match your own personality, interests, level of risk, etc.
Want a group of start-ups with the potential to skyrocket? A stable group of dividend payers that have been around for 100 years? Something in the middle? Want to own a fraction of this company, but a large chunk of that one? You can’t buy a fraction of a property, and combine it with parts of other properties.
There is an art to investing in general, but with stocks you have an incredibly diverse palette to create with.
It’s a powerful personal development tool
This is perhaps my favourite reason. You can learn a whole lot about yourself and the economy through investing directly in stocks. If you take the time to notice.
The characteristics you need to be successful include patience, discipline, confidence, resilience, ability to handle and learn from mistakes – all great skills that help with life in general. And stocks more than any other investment vehicle can present you with opportunities to practice these skills.
Despite all these great reasons, I understand investing directly in stocks won’t be for everyone. But unfortunately, too many people get scared away unnecessarily, or assume they can’t develop the right skills if they don’t already have them. This can stop them from considering some of the great benefits.
Whether its fears, lack of skill / knowledge / experience, or just general discomfort with the idea, if you really want to invest in stocks, all of these things can be overcome with a little effort. Here is a guide to starting to invest for beginners, or even starting to invest just Rs.1000 in stocks.
But at the end of the day, do what’s right for you when it comes to your future. Don’t do anything because someone says you MUST invest this way or that. Be curious, have an open mind, learn about the possibilities, and weigh up the evidence for yourself. This doesn’t just apply to investing, but is a great attitude to adopt in all parts of life.
Do you have any other great reasons for investing in stocks? Is there something specic that holds you back? Or are you convinced investing in stocks is just not right for you?