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3+1 Reasons To Buy Shares Now

Three fingersDespite the current doom and gloom surrounding the global economy, investing in shares still makes perfect sense to me. It always makes sense.

Here, then, are my three top reasons for buying shares right now.

Capital Growth  

Watching my capital grow over time is one of the main reasons why I like the stock market. When we buy shares in a company we are essentially acquiring a slice of a business, albeit a small one.

If you invest in a thriving and growing business, then you should have bought a stake in a company that could deliver rewards for you for a long time into the future.

Some examples of serial reward-producers over the last decade include Singapore Exchange (SGX: S68), Genting Singapore (SGX: G13) and Jardine Cycle & Carriage (SGX: C07). They have delivered annual total returns of 21%, 24% and 23% respectively.

Currently, our Straits Times Index (SGX: ^STI) is valued at around 13 times earnings. This means we are paying approximately S$100 for every S$7 that Singapore companies collectively make in bottom-line profits. That doesn’t strike me as being expensive.

Yield  

Apart from participating in the growth of a business, many Singapore businesses also distribute some of their profits to shareholders. This generally comes in the form of dividends.

Some businesses have long histories of reliable payouts. Pleasingly, the dividends can be reinvested into more shares, so over time you can gradually increase your stake in the business without having to stump up extra cash.

Diversification  

Buying shares is also a great way to alter the way that your wealth is distributed.

For instance, in recent years many of us have seen the value of our homes increase at the expense of other investments. Whilst this might be pleasing on the one hand, it could, on the other hand, introduce unnecessary risk to our wealth.

The last thing that we, as investors, should want to see is our wealth dependent on the movement of one asset class. By investing in shares, we can go some way towards compensating for this uneven distribution.

A bonus fourth reason  

There is a fourth reason for liking shares. It stems from my deep dislike of cash.

Cash has a terrible habit of losing its value over time. Even at a modest inflation rate of 2.7%, the dollar in your pocket is losing its buying power every day that you don’t anything productive with it.

In fact, S$100 today would only have the purchasing power of S$50 in 25 years’ time. It is one reason why I hold as little cash as possible. This annoys my bankers enormously. But, then again, I was not put on this planet to please bankers.

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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.