Although 2018 has been a roller-coaster for stock markets globally, their allure has continued to be an addiction for Canadians. This has been particularly true when compared to other assets like cash, property, and bonds. While it is true that those other assets have a great appeal during the economic cycle, stocks have always held a more enticing outlook when you take note of tax advantages, diversification, and logistics.
Let’s have a closer look at each of these advantages.
A diverse collection of stocks and bonds amassed by an investor brings an exposure to a number of global companies. This can help reduce the overall risk and provide a smoother return over the long run.
One big advantage of stocks over bonds is that the investor can share in the growing success of a company. Specifically, when an investor buys shares in a business which ends up doubling in profits, it is likely a significant rise in ithe company’s underlying valuation will happen — increasing stock prices. However, this same success isn’t realized for bond holders. A doubling in profit simply makes it likely that this debt will be repaid.
There are tax advantages to investing in stocks too. Some of these advantages come in the form of tax efficient wrappers (e.g., buying stocks inside a registered investment account), lower tax rates on capital gains as opposed to being against personal income tax rates. There is also dividend allowances which can allow investors to generate a descent second income from their investments in the stock market.
Buying and selling stocks have always been much easier to manage than dealing with other types of assets. The internet has made trading stocks dramatically simpler for anyone who is interested in investing. The commission cost has also dropped signficiantly, usually with a low flat fee per transaction enabling small, less active, investors to take advantage of bull markets.
Along with making it easier to open a new account online and buying and selling stocks, they offer better liquidity than many other assets. When dealing with bonds there is a chance that there can be a lack of buyers and sellers, the bid/offer spread could be very wide, and the buying/selling could take weeks to complete. This means that liquidating your position can be potentially more difficult. The benefit of stocks is it usually takes seconds to buy/sell shares in a company, making liquidating with stocks a much more convenient experience.
Therefore, by having access to a wide range of diverse global companies with significant ease, stocks are a very good investment choice. Although their volatility has been on people’s minds as of late, they have always been the most compelling investment potential of any major asset alternative for the long term.