Benefits of investing in the stock market

In the previous lesson, we said that investing in the stock market can play a huge role in economic prosperity, because it provides the financial resources needed by businesses to develop activities, and as a result, business prosperity, job creation and It follows the growth and prosperity of the country’s economy.

But the question must have arisen for you that what is the benefit of investing in the stock market and buying shares of companies. In other words, what is the reason for a person to choose to buy stocks and invest in the stock market instead of the various options that exist for investing? If you continue with this lesson, you will get the answers to these questions.

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Earn money

One of the main goals of any person is to invest, earn profit and income. Investing in the stock market, if properly and consciously, achieves this goal in two ways, one is to receive cash dividends and the other is to increase stock prices.

The company whose stock you buy will make a significant amount of profit annually if it operates successfully and profitably. According to the law, the company’s profit belongs to the shareholders of that company. Therefore, people who own the shares of a company also share in the company’s profit to the extent of their share. Of course, companies do not necessarily distribute all their annual profits to shareholders because they may need money to develop their operations, so they prefer to distribute part of the annual profits to shareholders and the other part to development activities. O company to spend. The dividends that are distributed annually among shareholders are called cash dividends or EPS. Receiving cash dividends is the first way shareholders earn money.

For example, suppose a company whose stock value on the stock exchange is 150 tomans. If this company distributes 15 Tomans profit among its shareholders at the end of the year, in fact, it has offered 10% cash profit to its shareholders. But shareholders ‘income is not limited to cash profits. When a company performs well and successfully, investors’ willingness to buy that company’s stock on the stock exchange increases. Therefore, investors are willing to pay more to buy the shares of that company, and as a result, the stock price of the company will increase in the stock market. An increase in the company’s stock price on the stock exchange increases the income and assets of its shareholders.

In the previous article, suppose that the stock price of the company in question, which was 150 Tomans last year, has reached 195 Tomans at the end of the year due to the successful performance of the company. That means a 30% increase. Therefore, in addition to receiving 10% cash dividend, the company’s shareholders also received 30% profit from the increase in the company’s stock price. That is, they made 40% profit in one year.

Of course, we must note that although the companies whose shares are traded on the stock exchange are all large, reputable and successful companies, but each company has its own performance and profitability. And investors need to look closely at company information when buying company stock to make a decent income.

Another point that should be considered by investors is that companies have different policies in the distribution of cash profits. When buying a company stock, you need to consider whether it is important for you to receive an annual cash dividend or whether you have a longer-term view and are more likely to increase the value of your stock.

For example, retirees who prefer to receive annual and continuous dividends to cover their own expenses are better off choosing stocks of companies that have a higher cash dividend distribution policy. But young people who want their stock value to increase significantly in the next few years prefer the stock of a company that pursues a development policy and devotes a significant portion of its annual profits to it. You can tell from the past policies of companies whether the company is more interested in distributing profits or the development of the company.

Security and transparency in investment

If you are told that by investing in something, you can multiply your capital in one year, but you are not aware of the details and quality of this investment, for example, you do not know what you are going to invest your money in. Is this a legal act at all or not? Is the person who claims to multiply your money at all a reliable person or not? Is your money back or is there a possibility of fraud? And thousands but and if دیگر in these circumstances are you willing to invest? Well, naturally the answer for many of you is no.

One of the most important benefits of investing in a stock exchange is investing in and having the protection of the law and regulations. In previous lessons, we mentioned the vital position of the stock market in the economy and said that because of this high importance, several rules and regulations have been passed regarding the stock market and the protection of investors in this market. This ensures the security of the stock market for investment.

For example, if a person buys a company’s stock on the stock exchange and the company refuses to pay the dividend at the end of the year despite the approval of cash dividends, the shareholder can sue the company and receive his dividend. Or, for example, companies whose shares are traded on the stock exchange are required to publish their financial and performance information on an ongoing basis so that investors can make informed decisions about buying or selling shares of that company with sufficient knowledge and understanding of the company’s status. . If the company does not publish its information in violation of the rules and regulations, the members of the company’s board of directors will be responsible and must be held accountable to the legal authorities for this action.

Also, as mentioned, according to the rules and regulations, companies whose shares are traded on the stock exchange are required to disclose all their important information, including financial information, programs and other items to the stock exchange. The stock exchange, after reviewing the information sent by the companies, publishes this information under the same conditions for the information of the shareholders. In addition, the stock exchange instantly publishes all information related to the latest status of transactions in the stock exchange, stock prices, supply and demand for each stock, the amount of buying and selling on stocks and other items through the Internet. Slowly And investors can decide whether to buy new stock or sell their stock by reviewing and analyzing this information.

This issue, known as transparency in the stock market, allows investors to make equal and fair decisions in terms of access to information. Therefore, we can consider investing in the stock market as a completely transparent investment.

Protecting capital against inflation

Money usually declines over time, and due to inflation in society, its value decreases if people do not invest their savings in the right place. While in 1340 Shamsi, with 20,000 Tomans, you could buy a residential house in 1390, the same 20,000 Tomans would probably be enough to buy a pair of children’s shoes. To maintain the value of money over time, the most appropriate solution is to invest, of course, in activities that can be more profitable than the devaluation of money due to inflation.

Investing in the stock market is one of the best of these methods. Now it is interesting to know that according to statistics, the average return on investment in the stock market in the last 20 years, ie from the beginning of 1370 to early 1391, has been much higher than the return on investment in markets such as gold, currency and housing. However, these markets may have experienced a lot of volatility at times.

But one question. How do you think investing in the stock market helps protect the value of money against inflation?

As we have said before, by buying the shares of a company, people actually share the benefits of this company, ie the assets of this company, as well as its profits and losses, in proportion to the share they buy. Naturally, over time, first, the value of the company’s assets increases in proportion to inflation, and second, the company makes a reasonable profit from the economic activities it carries out. Therefore, people who buy shares of the company, of course, if they make the right and informed choice can protect their capital against inflation.

High liquidity

One of the characteristics of a good asset is that it has a high liquidity capability, which means that we can convert it into cash very quickly. There may be situations for everyone throughout their lives that require them to cash in on their assets. Cashing assets, in addition to having its own problems, also takes time. Suppose, for example, that you turn your capital into an apartment and now you need cash due to circumstances and you want to sell the apartment. It is clear that from the time you decide to sell to sell and receive the money, you will face many problems, such as finding a customer, agreeing to a deal, transferring a document, and so on.

But people who invest in the stock market by buying stocks or other types of securities, as soon as they decide to sell, it is enough to go to the first stock exchange brokerage across the country and register their sale request. Even in a critical situation, if you sell your stock at a slightly lower price than the market price, it will be converted into cash in the shortest possible time. These conditions have led to a higher degree of liquidity of securities than other investments.

Participate in decision-making to run companies

People who buy a company’s stock can participate in the company’s decisions and how it is run by attending meetings and voting on the proportion of their share. These people can use their voting rights to elect the company’s board of directors, comment on new plans proposed by the company’s executives, and can also determine the amount of dividends to the company’s shareholders. In short, these people are the main owners of the company in the company’s decisions. Of course, as we have said, the degree of influence of each shareholder in the company’s decisions is equal to the amount of shares they have, and therefore people who have more shares can play a more effective role in the company’s decisions.