Thursday, February 3, 2011

Stock Market Basics - 3

When you put your money in banks, the bank pays you an interest. The relation between you and your bank is, as it is between a borrower and lender. But in the case of buying shares, you are giving your money to the company to become a partner of that company.
Since you are a partner of that company, you are also a part of the profit and loss of the company. When the company is in profit, the profits will be shared to you according the number of shares you are holding. In case of loss, though they won’t ask you, the value of the share will go down accordingly.
In a bank deposit, the risk is almost nil, though there is some risk associated with it. But in case of equities, the entire capital you have invested is at risk. But the return you get in bank deposit, which is  the interest, is always fixed and small. But the return you get in equities is always high but at the same time, if the company doesn’t perform well, then you are likely to lose the entire capital invested.
So, by investing in equities, you expose your money to high appreciation and also to high depreciation. The risk involved in equities is very high and at the same time the return is also very high. Though the risk is very high, the reward ( here it is the return from equities ) is also very high when compared to bank deposits.
The return on equities is some times phenomenal. Equities appreciate by two times or three times or more than that in a short span of time. Your capital will be doubled in every eight years in Bank deposits. But in shares, in a bull market, your capital will be doubled within few months.



6 comments:

  1. I belive only with the interest rate of 9%pa, our deposit can double in every eight years in bank. Just a thought...:)

    ReplyDelete
  2. Information about the shares, deposits ... so complete success of your posts and congratulations creative

    ReplyDelete
  3. Hmm..Nice articles,great Advise for me

    ReplyDelete
  4. I think you're right..in a bull market we can get double capital..better than we save our capital in bank..great posting..

    ReplyDelete