why do people invest in the stock market

1.  Careful Consideration

   
   • The thinking involved before making a decision to invest in stocks includes how to actually do it and in what stocks to invest. First someone has to decide whether he is willing to take on some risk and place his money on a stock that he hopes will increase in value. Due diligence by investigation of the company along with a study of it's history are critical factors. No one should just take a chance and invest in a company simply because it has been in business a long time. Thought is also required regarding how much of a role his stock investments will play within his entire investment portfolio. Also, if he is a first-time investor, he will have to register with a brokerage firm before buying stocks or making trades.

   Why Do It!

   • Investing in the stock market has one overriding goal: to make money. A typical reason why people will choose to invest in stocks rather than other avenues can be because she likes a specific industry or company. Maybe a company has come up with a new product with potential to revolutionize communications, or possibly new techniques that were developed by a company in the health care field. In other cases she may want to invest in a stable blue chip company with a good track record and is looking for a slow, long-term gain over a period of years, to perhaps enhance her retirement fund or pay for college tuition. In other cases, she may take a bigger risk and invest in smaller penny stock companies that she expects will do well in the near future. Excitement and thrill are factors as well, with anticipation of hitting it big by owning a piece of a company she likes and having the opportunity to flourish with it.

   Stock Market Versus Other Investments

   • Stocks provide but one avenue of investing. There are corporate and government bonds available, which are considered less risky than stocks but typically offer smaller returns, that are commonly found in portfolios. Investing in commodities such as gold or silver is yet another avenue, as is real estate, while some choose to invest in themselves through self-employment. Many investors have a diversified portfolio as a protection, so that if one form of investment takes a downward turn, there is still opportunity that the other instruments will be doing well and dampen the loss. Stocks are considered to be one of the most risky investments but also offer a chance to reap large rewards as the continuation of this opportunity remains prevalent.
     

     People invest in the stock market for many reasons, but key reason is to make money on the investments. Investing in stocks is more of a buy-and-hold approach than stock trading, which may involve a quick turn around. Investing in the stock market always involves risks.

     
     

     1. To Make Money

        • The average investor buys a stock in a publicly-traded company in the hopes that the stock's price will rise and he will make money. If the stock has great potential, is the subject of a positive news story, or if the company has developed a new and effective product, the stock price is likely to rise.

        Dividends

        • Some people invest in stock for the dividends (which a company pays to shareholders, out of its profits). Often times stock dividends beat money market yields, bond income, or mutual fund distributions. Utilities, real estate holding stocks (REITs), oil companies and some financial or bank stocks offer very attractive dividends.

        Speculation

        • Some stock investing is based on pure speculation. An investor may believe that the company in which she invests will introduce a blockbuster drug, strike oil, or manufacture the "next big thing."

        Appreciation

        • If a stock price has fallen dramatically an investor may purchase the stock because he believes it is cheap. His hope is that when the stock market starts to rise again, or the company reports good earnings or news, or the company is acquired, the stock will appreciate in price.

        Diversity

        • Stocks are considered an integral part of an investment portfolio. Holding and investing in stocks diversifies an investment account.

        Beat Inflation

        • Over the long run, investing in stocks returns more than other vehicles when adjusted for inflation. Even over a period of ups and downs, stocks are an excellent way to save for retirement and to meet long-term goals.

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