How does investing in the stock market make for a good investment?

In the last column, we learnt that fixed deposits are not a good investment for hard earned money, as the interest gets taxed. So how do we make sure that our investments start giving us returns higher than the annual rise in the price of goods and services?

In an earlier column we had learnt a little bit about investing in the stock market. When we buy stocks, what we are buying are actually ownership in companies. Let us assume that a company is like a pizza. Now cut this pizza in to a 100 equal slices and let us call these slices “shares” or “stocks”. So when you get a slice, you get one per cent of the pizza. Likewise, you get one per cent of all the profits or losses made by the company whose shares you own.

How does investing in shares do better than bank fixed deposits? Is investing in stocks akin to gambling or buying a lottery ticket? Not at all. Look around you. Can you find some products that you absolutely love? How about Coca-Cola? Or Lays potato chips. When you go to a shop, would you like to buy Coca-Cola or a cola drink from an un-heard of brand? Similarly, would you buy the Lay Buddy pack or some nondescript chips made by an unknown company? Here lies the answer to the secret of healthy returns from your investments. Let us see how in the next column.

Young World Money-Wizards Quiz # 29 : What is meant by two factor authentication, when it comes to internet banking?

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