Why is Buying Stock in a Corporation Attractive to Investors?

Buying stock in a company is attractive because it gives investors the opportunity to share in the profits of a company. It is the most straightforward way to do this, and if you believe that a company has a bright future, buying stock in the company can be the best way to profit along with the company.

History

• Buying stock in companies has been a common investment option for hundreds of years. The oldest existing stock certificate was issued in 1606 by a Dutch firm, and there are certainly older examples of investors buying stock in a company. In more current times, it has become such a popular means of investing that as of March 2010, the world stock market is valued at roughly $50 trillion.

Hisorical Performance of the Stock Market

• People make investments with the hope of generating a return on their investment, and throughout history the stock market has delivered good returns. For instance, from 1950 to 2009 the stock market, as measured by the Standard & Poor's 500 index, delivered a 7 percent real return. Real return refers to the fact that the 7 percent accounts for inflation, which means that your investment would be worth 7 percent more in real terms. So the popularity can be partially attributed to the return that the stock market generates.

Picking Specific Companies to Invest In

• A further factor, beyond return, that makes buying stock in a corporation so popular is the thrill of researching and identifying certain companies that you deem good investments. In the stock market there are winners and losers. Individuals attempt to pick the winners and avoid the losers in order to maximize returns. This process of picking the best companies, and then buying stock in them, is an additional factor that makes buying stock in a company so popular.

The Ease of Buying Stock

• A further attraction to buying stock in a corporation is the ease at which individuals can now purchase shares. There are several methods through which individuals can purchase stock in a company including with a personal broker or an online brokerage account. Opening an account with a broker or opening an online brokerage account is no more difficult than opening a checking account at a bank. Additionally, the low price of trades offered through online brokerage accounts has made investing in stock even more attractive.

Warning

• Although investing in stock has become such a widely used investment strategy, it must be noted that the stock market does not always yield positive returns on investment. As with any type of investment, there is risk associated with buying shares in a company. The risk is of losing all the money you used to purchase the stock. A careful analysis of the risks and rewards of buying stock in a corporation must be made before proceeding with the investment.