There are several reasons to start investing in the stock market.
1. Compounding
2. Historical Returns
3. Efficient Taxation
Compounding refers to how a an investment will progressively earn greater and greater returns the longer it is invested. For example, let?s say you invest $10,000 in the stock market and average a 10% return annually. In year 1, you will earn $100 or 10%, but in year two you will earn $110 or 11% on your original $1,000 and in year 25 you would earn approximately $985, almost 100% of your original investment. The longer your money is compounding the greater your returns will be asusming you can maintain the percentage return.
Historical returns for the stock market have over the long run outperformed other types of investments such as bonds, preferred shares, GICs and money market investments. This is even more true today with interest bearing investments paying such low rates. The rate of a 5 year GIC is currently about 1.85%, which is not even keeping up with inflation in Canada, which is currently at 3.1%
Efficient Taxation refers to the way that investments in the stock market are taxed less than other investments. When you invest in an interest bearing investment such as a bond or GIC, the interest is treated as regular income and you will have to pay income tax at your current marginal rate of tax. When you invest in the stock market, you can earn capital gains or dividend income both of which are taxed more favourably than interest income. Capital gains arise when you sell shares for more than you paid for them and they receive a 50% tax break. If you earn $10,000 from a stock investment only $5,000 of it will be taxed, this mean that the most you will ever pay is 23.2% tax if you were in the highest tax bracket. Dividend income receives favourable tax treatment as well. When dividend income is received the amount reported as income would be grossed up by 45%, however,a 19% dividend tax credit significantly reduces tax you will pay on them. In fact, Canadians with no other sources of income can receive over $65,000 in dividend income tax free when the basic personal amount and dividend tax credits are applied.
The above examples are just a few of the reasons why you should start investing in the stock market and there are way to safely do so if you take the time to properly educate yourself.
About the Author
Jason Inget, CA
Jason Inget is the founder of http://www.investmenttutor.ca an educational company that provides one on one investment tutoring sessions to those looking to start investing in the stock market.
Article source: http://goarticles.com/article/Why-you-should-start-investing-in-the-stock-market/5542329/
Source: http://www.articles-digest.com/why-you-should-start-investing-in-the-stock-market/
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