Even though the global economy still looks gloomy and cross-border conflicts continue to dominate the news, investing in shares still makes sense. Here are three reasons why it might pay to look at shares.
Watch your capital grow
This is perhaps one of the main reasons why most people buy shares – for their potential to grow over time. When we buy shares in a company we are acquiring a slice of a business, albeit a small one.
Currently, Singapore shares are valued at around 11 times earnings. This means we are paying approximately $11 for every $1 that Singapore companies make in profit, which does not look expensive. Furthermore, over time, most businesses should grow, and as a part owner of the business,your share of the spoils should increase too.
Over the last ten years, the Straits Times Index (SGX: ^STI), which includes some of Singapore’s biggest companies, has risen 158%, which equates to an annual increase of around 9%.
Reinvest your dividends
Apart from participating in the growth of a business, many businesses will also distribute some of their profits to shareholders. This generally comes in the form of dividends, and some businesses have a history of reliable pay outs.
Pleasingly for investors, the dividends can be reinvested into more shares. So over time you can build up your stake in the business simply by buying more shares using the income generated from dividends alone.
Spreading your wealth
Buying shares is also a great way to alter the way your wealth is distributed across different asset classes. Whilst it may feel great to know that your home has appreciated in value, it might make sense not to put all your wealth into one property basket.
This can be quite risky because a greater proportion of our wealth would hinge on the movement of property prices. By investing in shares, we can go some way towards compensating for the way that our wealth might be disproportionately skewed towards our home.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.