Why Own Stocks?
A topic discussed multiple times, search online and you can find a number of reasons on why to own stocks from inflation to power of compounding. But I have a different take on it.
I've always wanted to start a business and I am sure there are a lot of you out there who wish to do the same. But it takes a lot of guts and courage, not to mention the hard work with no guarantee of success no matter how good your idea is. Starting a business is like taking a leap of fait; and because of the uncertainty, many entrepreneurs never take the chance.
What if I say you could own a piece of a business without ever working on an idea, developing a product or attending a board meeting. Yes, by investing in stocks you can own successful companies. You could be passionate about certain brands and products and might want to own a piece of the company you believe in. If you own a stock of Apple, it means you own a fraction of the corporation. This was one of my motivations to learn more about the stock market and that urged me towards buying stocks.
Owning a stock not only make you feel good, but it comes with another big benefit. Why do we own a business? Exactly, to make a profit. Same goes with stocks, you make money through capital appreciation and dividends. Capital appreciation is the profit you make after you buy a stock and sell it at a higher price. When you keep stocks long enough, as an owner of the company you are entitled to a share of the company's profits in the form of dividends. Not every company pay dividends though. They determine that based on performance/earnings every quarter. If it was a bad quarter for the company, dividends are often the first thing to get cut.
The company decides what the dividend payout will be on the declaration date. But to get paid the dividend you should own the stock by the ex-dividend date which is 4 days before the record date. Record date is the day when the company actually looks at the list of shareholders to see who gets the dividend. The total return is the money you make on dividends throughout the period you hold the stock plus the stock’s capital appreciation at the time of sale.
So building a balanced portfolio with a good mix of dividend paying and growth stocks can not only ensure a passive income and help build your savings but also give you a sense of entrepreneurial satisfaction.