WHY STOCKS ARE BETTER INVESTMENT TOOLS?

Do you know there are many investment options such as stocks, bonds, real estate etc. available in market to invest? But over long term if you invest wisely in stocks, it can give you handsome results. I have always preferred stocks as a better investment as compared to other investment tools. Well, the reason you should also invest in stocks are many but i will explain some of them so that you can also be aware from these benefits. 
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Capital: Investing in stocks is much easy and you can start with a very little capital but you can't invest in real estate unless you have got a large capital. Nowadays, online stock investing has changed the whole process. You only need to open a demat account (we will talk about this later ) and with few clicks you have done your work. but in case of real estate it is a very long process to buy the property.

liquidity: liquidity simply means how easy you can convert your assets or investments to cash. Stocks are most liquid investment, you can buy or sell stocks online just in a few clicks but real estate is least liquid of all because it may take few days or even months to sell your property and add cash to your pocket. But stocks can be sold whenever you want.

Taxes: Another aspect to consider when deciding to invest in real estate or the stock market is taxes. If you own property, you will be required to pay property taxes every quarter, based on the assessed value as determined by the city or country. This is included in your mortgage payment. Whether you want to flip the property or hold onto it as a landlord, you will also have to pay tax on the sale or rental proceeds.

There are certain tax benefits unique to owning real estate as a landlord, however. The interest expense on your mortgage is tax deductible, along with operating expenses, property taxes, insurance and depreciation. Exactly how much you can deduct will likely depend on the rental income. In most situations, under the passive activity loss rules, you cannot write off deductions that are more than the rental income, which would generate a loss. Working with a CPA can be very helpful, particularly when investment properties or multiple residences are involved.

Stocks have tax consequences as well; first, you are required to pay a capital gains tax on any profits you made from selling stock. Furthermore, even without a sale, you are also required to pay a tax on any dividends you receive.

Return comparisons: here below is the chart for return from various assets class.
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Risk: In stock investing you can always calculate your risk bearing capacity and can take action accordingly. Historical data, companies financials data etc. can be a great tool analyzing risks. However, in real estate you also have historical data of rents and increase in property rate but according to me here you don't have that much of control.

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Now, i guess you all know why i prefer stocks as a better investment tool rather than real estate.







WHAT IS AN INDEX?

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According to investopedia –
An index is an indicator or measure of something, and in finance, it typically refers to a statistical measure of change in a securities market. In the case of financial markets, stock and bond market indices consist of an imaginary portfolio of securities representing a particular market or a portion of it.

In simple terms an index is a barometer to check whether the stock market as a whole or the economy of any country is on positive side or being negative. I guess, you must have heard of people saying like “today the market is up or today the market is down”. Well, they mean how the index is doing? Generally, index and markets are used interchangeably in stock market. And nasdaq, dow jonmes, shanghai, dax,cac, sensex and nifty50 are all examples of popular stock market indexes all over the world. beside these indexes there are many indexes which represent only one type of industry so that investors can determine whether they have to invest in that particular industry or not. If the index of that industry is doing well , they will invest their money otherwise they will find another .
Some important indexes in India:
  • BSE SENSEX
  • NIFTY 50
  • CNX NIFTY JUNIOR
  • S&P CNX 500

SOME IMPORTANT USE OF INDEX:
  • They help us to find the broad trend in the market by keeping track of the whole market.
  • Can be used as a benchmark to evaluate the investor’s portfolio.
  • Allocate the funds rationally among stocks.
  • Helps in comparison of returns.
  • Acts as a basis of index fund.

HOW A COMPANY IS SELECTED TO BE LISTED ON INDEX?
The selection criteria of a company to be listed on a index depends on various factors such as :
  • MARKET CAPITALIZATION
  • LIQUIDITY
  • VOLUME etc.