Although it can be painful to own stock in a bear market, these securities still offer a combination of key advantages not found in any other type of security or investment. Here are several reasons why stocks should still constitute a significant portion of your portfolio, assuming that you are seeking any type of long-term growth:

  1. Long-term growth potential

History clearly shows that only two asset classes have grown faster than inflation over time: real estate and common stock, the two basic forms of equity or ownership in an asset or company. Common stock has grown by an average of about 8-12% over the decades. Small company stocks have grown more than blue-chip stocks, albeit with much greater volatility. But the stock market has a general long-term upward trend.

  1. Liquidity

Stocks are one of the easiest types of assets to liquidate if cash is needed. Even the stock of a closely held business that is not traded on a major public exchange can usually be sold more quickly than real estate or other real assets. Liquidity like this can help put your mind at ease, knowing that in an emergency, you will be able to access your cash.

  1. Variety

There are thousands of publicly traded companies to choose from. Stocks of small companies will have more growth potential and greater volatility, while stocks of large firms offer greater stability and dividend income. Penny stocks are suitable for speculators, while blue-chip stocks are found in many retirement portfolios. Some stocks pay high dividends and are suitable for investors seeking income, while others pay little or no dividends but post strong capital gains. There are hundreds of stocks to choose from in every sector of the economy, from healthcare to technology to heavy industry, transportation, communications, natural resources and entertainment. (Are the countless stock categories leaving you puzzled? Let us help you sort through the confusion; read The Alphabet Soup Of Stocks.)

  1. Available Information

Most publicly-traded stocks have a wealth of information available for investors. Rating agencies such as Morningstar offer analytical breakdowns on many companies and provide such technical data as alpha, beta, standard deviation and historical performance, along with analyst commentary for larger or more popular companies. Most company websites have an investor section that provides the company's financial statement and stock performance. A plethora of investing websites also recommend stocks and offer sophisticated tools that can analyze stock price movements.



  1. Dividend Income

Some stocks pay a periodic dividend to investors. This dividend can be higher than current interest rates in some cases and can be an attractive alternative to CDs or treasury securities for moderate investors seeking current income. Many blue-chip stocks pay dividends, and preferred stocks usually pay a dividend equal to a set rate of interest such as 6%. Preferred issues also usually have a higher rate than guaranteed instruments. (For more on dividends, read 5-Star Dividend Stocks.)

These are just some of the advantages that stocks provide to investors. Despite their volatility, stocks as a whole have historically risen in value over time more than any other type of investment. For more information on stocks, visit our section on stocks or consult your broker or financial advisor.

Catch up on your financial news; read Water Cooler Finance: The Unrelenting Claw Of Bernie Madoff.

Related Articles
  1. Mutual Funds & ETFs

    What You Need To Know About Bond ETF Yields

    When it comes to fixed income investing, yield is an important component of a bond investment’s total return to accurately assess if it's the right move.
  2. Investing

    Picking Apart a Winning New Bond Fund Alternative

    Schooner's Hedged Alternative Income Fund offers a unique strategy, but does its upside potential outweigh its downside risk right now?
  3. Investing Basics

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
  4. Investing

    Short-Term Funds or Fixed Deposits: Is One Better?

    Choosing between short-term funds and fixed deposits? Here's what you need to know.
  5. Investing

    Looking for Alternatives to Invest in Real Estate?

    There are several ways to invest in “real estate” via the stock market, buying stocks and hold them for years. We give you 5 ways to invest in real estate.
  6. Investing Basics

    How Does a Dividend Reinvestment Plan Work?

    A dividend reinvestment plan allows investors to use their dividends to purchase more shares of the corporation’s stock, rather than receiving payment.
  7. Investing

    Why Higher Rates Could Be Good News For Consumers

    While rates remain extraordinarily low by historical standards, in the last few months we have witnessed a modest change in the environment.
  8. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  9. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  10. Mutual Funds & ETFs

    5 Dividend ETFs with Growth Potential

    A quick look at a few ETFs with substantial growth potential.
RELATED TERMS
  1. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  4. Dividend

    A distribution of a portion of a company's earnings, decided ...
  5. S&P 500 Dividend Aristocrats

    Companies that have had an increase in dividends for 25 consecutive ...
  6. UPREIT

    Short for umbrella partnership real estate investment trust, ...
RELATED FAQS
  1. What kind of companies in the utilities sector offer the most stable dividends for ...

    Among the companies that offer the most stable dividends for risk-averse investors are large, solidly established U.S.-based ... Read Full Answer >>
  2. What are the most popular mutual funds that give exposure to the utilities sector?

    Some of the most popular mutual funds that provide exposure to the utilities sector include American Century Utilities, Prudential ... Read Full Answer >>
  3. What dividend yield is typical for the airline sector?

    A dividend yield of 1% is typical for the airline sector. However, many airlines do not pay any dividends at all unlike other ... Read Full Answer >>
  4. How can the price of a stock change on the ex-dividend date?

    An investor looking for a dividend-paying stock has two important dates to consider when investing in a company. The first ... Read Full Answer >>
  5. What are the drawbacks of a small investor buying blue-chip stocks?

    Blue-chip stocks are generally safer for investors. However, their drawbacks for small investors include moderate growth ... Read Full Answer >>
  6. What is the average annual dividend yield of companies in the automotive sector?

    As of May 2015, using trailing 12-month data, the annual dividend yields of industries in the automotive sector are 1.01% ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!