Is the Stock Market Worth Investing?

Investors, especially those who have not yet invested in stocks are often tormented by the question, "Is the Stock Market Worth Investing?". On one hand they are anxious about investing in stock markets, having read or heard about high risks, but on the other hand they cannot ignore stocks as the returns they are getting from fixed deposits from banks are paltry and are eroded by inflation.

Risk:

Risk is inherent in every financial instrument, and stocks are no exception. Is it not a huge risk to save lifetime earnings in low-return bank deposits/ public provident fund (PPF) accounts, only to find that the accumulated savings are not adequate to sustain one's lifestyle post retirement? 

Electricity, which is such a universal, versatile and useful form of energy, can be highly risky if not handled carefully, but do we or can we avoid using electricity in our everyday lives?

Warren Buffett says, "Risk Comes from Not Knowing What You Are Doing", and he cannot be wrong for he has risen to the position of worlds second richest man, primarily from the stock market!

There is no doubt whatsoever that stocks and stock market is the only path for generating significant and enduring wealth.

Long-term 'Value Investing' is a sure and safe path to financial freedom and lasting riches.

However, investors are advised not to dabble in stocks blindly.

We recommend that you buy a copy of the book, "The Intelligent Investor", by Benjamin Graham. Warren Buffett cherishes it recommends it too!

I read this book and it changed my life and I am sure it will change yours too!

Two Ways to Invest in Stock Markets:

1. Direct investment in stocks of a handful of excellent companies that reward investors with bountiful dividends and long-term capital appreciation.
2. Regular investment in low-cost, well diversified, equity/ growth, index mutual funds/ exchange traded funds.

Recommended further reading:

I have answered similar and related questions many times before and instead of repeating them, I shall link you to such articles below:

• Can One Get Rich From The Stock Market?
• What is the Better Investment Instrument Between Stock and Bond?
• Is the Stock Market a Place to Make a Fast Buck?
• Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?
• How the Stock Market Works
• The Stock Market Explained Simply

In conclusion, the answer to the question, "Is the Stock Market Worth Investing?", is an emphatic and big YES!

What is the Better Investment Instrument Between Stock and Bond?

There is not a shred of doubt that only shares can give excellent results and create real wealth over a long period of time.

Bonds and Debentures just fixed income securities that offer no scope of capital appreciation, at least in India as of now. In advanced financial markets bond markets are highly mature allowing scope for a bit of capital appreciation and enhancing interest yield. Therefore they are merely like fixed deposits in banks with higher risks.

Investing in stocks directly however requires investing knowledge and there are two options before the investor:

Option 1: Making Investments Directly in Shares

Devote a couple of hours every day and learn and practice value investing. The best and only book I will recommend is “The Intelligent Investor” by Benjamin Graham.

You may also visit this blog “Wealth Vidya” and a few other value investing sites.

Caution:

Please beware of a number of books and websites that encourage people to engage in day-trading, margin-trading and trading in futures and options, commodities and currencies. All these are not investing activities but purely speculative acts that have the potential to destroy the capital and even lives of people.

Option 2: Investments in Index Mutual Funds:

Those who cannot afford to learn investing have this easy and wonderful option of investing in Index Funds and Exchange Traded Funds (ETFs).

Long term Investing:

Whether you choose option one or two, please always remember that the secret behind investment success is the law of “Miracle of Compounding”, which requires you to keep investing and be invested for 20 to 50 years.

Conclusion:

There is not an iota of doubt that only shares or stocks are the investment vehicles that can yield investment success and real wealth creation.