Stocks and Shares |
|
The stock markets have an unenviable reputation for volatility and unpredictable performance that can cause losses to the unwary investor.
However, it is important to recognise that despite this volatility the long term performance is superior to any other form of investment. Why?
Stock markets are made up of companies all of which are striving to make profit and to reward both management and shareholders when this has been successful. Companies are innovative and adapt to changing conditions and, over time, even if a few fail, the majority will grow to beat inflation.
So the interests of the management coincide with those of their shareholders.
Contrast this with placing cash in the bank or subscribing to government bonds. Stability and security may be greater but the overall objective of issuers is to pay as little as they can get away with, and the interests of the parties are, to some degree, conflicting.
Real property growth is driven by supply and demand more than by any other factor. Demand is fuelled by investors' confidence and cheap and accessible finance rather than by any form of real organic growth.
The most important point with investing in the stockmarkets is to diversify your risk across all sectors and to avoid a concentrated exposure no matter how safe or attractive it may seem. The banking crisis of 2008 made this all too clear.
However, it is important to recognise that despite this volatility the long term performance is superior to any other form of investment. Why?
Stock markets are made up of companies all of which are striving to make profit and to reward both management and shareholders when this has been successful. Companies are innovative and adapt to changing conditions and, over time, even if a few fail, the majority will grow to beat inflation.
So the interests of the management coincide with those of their shareholders.
Contrast this with placing cash in the bank or subscribing to government bonds. Stability and security may be greater but the overall objective of issuers is to pay as little as they can get away with, and the interests of the parties are, to some degree, conflicting.
Real property growth is driven by supply and demand more than by any other factor. Demand is fuelled by investors' confidence and cheap and accessible finance rather than by any form of real organic growth.
The most important point with investing in the stockmarkets is to diversify your risk across all sectors and to avoid a concentrated exposure no matter how safe or attractive it may seem. The banking crisis of 2008 made this all too clear.
