If you get a chance, buy some stock. Most (if not all) people of wealth have a significant investment portfolio which includes stocks. Having stock means that you have partial ownership of a company. Why should you own stocks? Well, they are awesome to own for a number of reasons.
1) Dividends. To the extent that the company is profitable, you may receive a dividend or semi annual cash payment. In some cases, you’ll get annual or unexpected bonus dividends. Many companies have increased their dividends over time, which gives your cash flow a nice boost and helps to hedge against inflation. Dividends are also great because they provide you some certainty regarding your investment – you can fudge paper profits, but its hard to manipulate cash payments.
2) Appreciation. Stocks can appreciate in value. In some cases the appreciation can be dramatic (think Apple over the past few years).
3) Bragging rights. Having stocks can give you bragging rights. Stocks can be a fun topic to discuss with your friends or at parties. Some people find stocks endlessly fascinating, and if you own a few, you’ll have some common ground for relating to people.
4) Collateral. Stocks – especially blue chip stocks – can be great forms of collateral. So, if you are in a pinch and need to raise some cash, you can borrow against your portfolio.
5) Ownership. Owning stocks gives you a say in the running of the company. While most of the major operational decisions are likely to be made by corporate management you’ll find that being a shareholder means you’ll get asked to vote in corporate elections. So you have some say in the running of the company, if not a minor one.
6) Spin offs and splits. Stock owners are in line for spin offs. If the company decides it wants to divest itself of any of its business lines, it may start a new company and distribute shares in the new company based on ownership in the parent company. Bonus! Stocks can also split, which means that the stock you own divides to increase the number of shares outstanding. This is typically a 2 for 1 or a 3 for 2 ratio. Splits are great because they indicate investor interest and can signal long run profitability in the company.
7) Compounding. If your stock pays dividends you can reinvest them and start compounding your wealth quickly due to the extra boost you get from the dividends.
8) Side benefits. Owning stocks can give you some nice side benefits. For example if you own shares in some cruise lines you can get a discount on cruise trips (1). Owing McDonalds means you get a gift certificate for free french fries and if you are a Starbucks shareholder, you can get free coffee (2).
Finally, stocks have tended to outperform other asset classes, like bonds or precious metals. So not only only do you get all these great advantages you also an asset which tends to perform well over time.
Happy investing and don’t forget to pick up a few shares of stock if you get a chance!
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