How Does Investing In Stocks Help You To Build Your Wealth?

How Stock Investing Generate Wealth?

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Stock Investment For Wealth Generation

Stock Market the name itself having huge weightage. But it is a very risky game and you are not alone if you are afraid of investing in the stock market. Individuals with little or no expertise in stock investing are either horrified by horror stories  about the typical investor losing 50% of their portfolio worth, or they are frustrated by the fact that the average investor loses 50% of their portfolio value every year. 

The truth is that investing in the stock market is risky game, but  when done correctly in disciplined way, it may be one of the most efficient methods to increase one's net-worth. While the value of one's property often accounts for the majority of an individual's net worth, most successful and very wealthy people invest the majority of their capital in stocks. Stock Market needs a deep dedication, discipline & passion. 

Dedication - Committed to task

Discipline - Follow proper path

Passion - Strong emotion 

Although every thing above is ok, but the important question is

How stock investing generates wealth?

We will try to understand the process of wealth generation by investing in stocks with the help of a simple example. Several studies have demonstrated that equities outperform all other asset classes in terms of investment returns over longer timeframes. We will consider a period of around 10 years for our study purpose.

Capital gains and dividends + Splits + Bonus are the sources of stock returns. When you sell a stock for a higher price than when you bought it, you have a capital gain. A dividend is a portion of a company's profit that is distributed to its investors. 

Suppose we have  bought 1 shares at the rate $10 that means we have invested $10 in share market initially.

So, first we will see the capital appreciation, if the stock appreciated with 25% CAGR. 

Fig -1

Fig - 1: In 10 Yrs price of 1 share increase from $10 to $93 give CAGR of 25% without Dividend gain consideration. 

Fig - 2

Fig - 2: In 10 Yrs price of 1 share increase from $10 to $113.8 give CAGR of 28% including Dividend gain consideration.

Fig - 3

But if we patiently wait and selected a good stock by doing proper stock valuation that give dividends, splits and bonus then in  a period of 10 Yrs 1 share get converted into 80 shares and the amount accumulated is increase from $10 to $418.7 give CAGR of 45% including Dividend gain + Splits + Bonus.

So, Suppose you have bought 100 shares i.e. invested $1000 10 Yrs ago then after 10 Yrs it will become $41800 including price appreciation + dividend + split  + bonus (45% CAGR return).

To Learn More About 

Stock Splits - Click Here

Bonus Shares - Click Here

Now the concept is very much clear to every body.

Conclusion

It's time to wrap up. Kindly note that above all calculation is imaginary and used to clear the concept of benefit of investing in stock and how our investment amount appreciates, if we select proper stock with stock valuation concept and keep hold it for long period. 

So, in this way investing in stocks help you to build your wealth.

Disclaimer: This article is only for knowledge and information sharing purpose and not for any type of recommendation or promotion of anything to anyone.

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