My interest toward the equity stock market has been casual. At the beginning I had a simple curiosity which over time it became more and more fascinating.
I think is fundamental for you to understand why you should invest an x percentage of your wealth in stock. I avoid being to technical, thou I pick-up a simple and truthful article written by Fidelity. It says everything in a comprehensible way. Following Fidelity’s article, you can find another short article which explain why investing in shares is recommendable (published from the London Stock Exchange).
When you’re young, saving for something that’s years away—aka retirement—may not seem important. But it is exactly when you should start saving. The more time your money is invested, the more time it has to grow. And one of the best ways to give your money a chance to grow over the long term is by investing in stocks and stock mutual funds.
“In general, people should be more aggressive in their investment mix when they are younger—that is, tilt more toward stocks,” says John Sweeney, executive vice president of retirement and investing strategies.
Yet, some younger people appear to be avoiding stocks. When we asked young people (millennials, born 1981 and later) how they were investing, 39% of them said they had 50% or less allocated to stocks. Further, 16% said they were in cash only, according to our Retirement Savings Assessment.1 And that’s not great because too low an allocation to stocks can limit how much money you’ll have when you retire.
Other Fidelity data, however, suggests that there is a potential bright spot. Many younger investors, who have 401(k)s with Fidelity, have an appropriate allocation to stocks based on their age. This is because many are automatically invested in the default investment option in their 401(k) plan, which is typically a target-date fund. With a target-date fund, you choose the fund that is closest to your anticipated year of retirement. The target-date fund manager selects, monitors, and adjusts the mix to match the target retirement date.
If you are among the stock shy, here are three reasons why you should choose stocks when saving for a far-off goal like retirement. (Fidelity – https://www.fidelity.com/viewpoints/retirement/why-you-need-stocks )
Studies have proved, time and again, that shares (or equities) are one of the best long-term investments in the financial market place. They tend to outperform government bonds, corporate bonds, property and many other types of asset.
Share prices can go down as well as up so buying shares is not without risk, but over the long term, they can generate good returns. If you want to double your money in a year, for example, buying shares is not the best way to do it. But if you want to invest for ten or 20 years, shares may be a rewarding investment.
Shares are designed to provide investors with two types of return, annual income and long-term capital growth.
Most shares offer income in the form of dividends, which are typically paid twice a year. Dividends can be seen as a reward for shareholders. They are paid when a company is profitable and has cash in the bank after it has satisfied all its obligations. In most cases, the more profitable a company is, the higher the dividend payments. If a company is making substantial amounts of money and making significant dividend payments, it is usually considered a good investment so the share price rises.
Investors may buy shares specifically for income. Many companies generate substantial amounts of cash every year. They may use some of that money for general corporate purposes, such as paying rent and wage bills, and they may use some of the money to invest in equipment, research and development. But a proportion of that money may be paid to investors as a dividend. As dividends are usually paid out twice a year, they can provide investors with a regular income. Companies that pay generous dividends are known as income stocks.
Some companies have heavy investment programmes so they plough their profits back into the business. These companies are often at an early stage of their development and they are keen to expand and grow. They are known as growth businesses and, if their plans succeed, their share price will increase substantially.
Long-term capital growth comes about when a share price increases over a period of time.
(link : http://www.londonstockexchange.com/traders-and-brokers/private-investors/private-investors/about-share/why-invest-shares/why-invest-shares.htm)