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Why do people buy shares?

Tristan Harrison
best asx shares

It’s around this time of year that people decide they want to take charge of their finances and perhaps start investing.

We hear lots about the share market in the news. Sometimes the media like to make shares sound scarier than they are. If shares are so volatile, why do people decide to buy shares?

Best of the rest

People have to put their money somewhere. Unless you’re going to try something crazy like cryptocurrency there are only a few places to put your money.

Savings accounts, term deposits, bonds, property and businesses (shares).

With how low interest rates are, I think shares are the best of the rest.

Returns

Shares have proven over the long-term that they can produce the strongest returns at an average return per annum of 10% per annum throughout history. There will be some years that are a lot better than 10% and some that are worse.

The compounding power of shares with the ability to reinvest back into their businesses is a powerful factor.

Index returns can be captured through investing in good exchange-traded funds like iShares S&P 500 ETF (ASX: IVV) and Vanguard Australian Share ETF (ASX: VAS). But there are plenty of individual growth shares that are great options too. 

Dividends

Each year businesses will hopefully generate profit. From that profit businesses can decide to pay some or all of their profits out as a dividend.

Companies have a lot of control over what dividends they pay, so the cashflow of dividends are normally less volatile than share prices.

Some companies can pay extremely reliable and growing dividends like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) or APA Group (ASX: APA).

Little effort

I don’t want to have to spend tons of time dealing with rental agents, thinking about a broken toilet or having the stress of a tenant not paying rent. Property can be a lot of work. 

Once you’ve bought shares you don’t need to do anything else. That’s why the management of businesses get paid (a lot) to take care of things for us, but at least we don’t have to deal with them regularly.

Foolish takeaway

Shares are a great way to grow your wealth over the long-term and get paid dividends just for being a part-owner.

The post Why do people buy shares? appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019