Once upon a time a famous investor, Warren Buffet, once said that to be financially successful, don’t rely on just one source of income. Especially if our salary/income is not much. It certainly will not make us rich quickly. Look for other sources of income.
One way to earn additional income is to invest in the capital market, especially investing in-stock instruments. Why stock? Because this instrument offers high-profit potential, so does the risk.
Advice from one of the richest people in the world is not just a figment. Warren Buffet has proven, how he can become so very rich with many sources of income from the results of his investments. According to Forbes in May 2018, Buffett’s wealth is estimated to reach 84 billion dollars, or the equivalent of 1,200 trillion rupiahs!!.
Then how stocks can increase investor wealth? Here’s the explanation.
Advantages of Investing in Stocks
Owning shares of a company means that we become one of the owners of the company. If the number of shares we own is very large (eg 5% of the outstanding shares), we can participate in determining the company’s leadership and the strategy the company will take.
Because we are one of the owners of the company whose shares we own, we are entitled to the profits generated by the company in the form of dividends. The more shares you own, the more total dividends you get.
But keep in mind, companies do not always distribute dividends. Dividends will only be distributed if the company makes a profit and the majority of shareholders in the GMS (General Meeting of Shareholders) agree to distribute the dividends.
Another advantage of investing in stocks is obtaining capital gains. Capital gain is the profit that investors get from the profit difference between the selling price and the purchase price. Some investors are willing to hold their shares in the long term in order to obtain large capital gains in addition to getting a “bonus” in the form of dividends. Interesting right?
The potential profit from capital gains plus dividends distributed every year is certainly an attractive additional income, especially for those of us who have only relied on monthly salaries. Investment returns will increase if we are willing to be patient not to always withdraw the dividends we get, but to reinvest them back into the initial capital. Thus in the following year, with the same return, we can get a larger nominal. This is known as the compounding effect.
Risks of Investing in Stocks
In addition to the benefits obtained from investing in stocks, stocks also have several risks that must be faced by investors. The first risk is a capital loss. This risk arises when investors suffer losses due to selling shares at a lower price than the purchase price. A capital loss is the opposite of capital gain.
The second risk is that investors do not receive dividends. This happened because the company suffered losses due to poor performance. Or it could be that the company is profitable, but the majority of shareholders do not agree to distribute dividends with certain considerations. Therefore, if you want to get regular dividends, invest in companies that have regularly distributed dividends every year for the past few years.
The next risk is suspension, which means the termination of trading activities on certain shares by the stock exchange authority. Thus, investors cannot sell their shares until the suspended status is lifted.
And the last risk is that the company is declared bankrupt by the court so it must be dissolved. Under these conditions, the shareholder’s claim rights to the company’s assets have the last priority. This means that the company must first settle all of its debts to creditors and bondholders. Then if there is still a remainder from the sale of the company’s assets, the remainder is divided proportionally to all shareholders.
Investment Benefits Can Meet Daily Needs, Is It Possible?
Most stock investors dream of being able to achieve financial freedom through their stock investments. Some even leave their jobs to become full-time investors. Instead of only receiving a “medium” salary plus a tedious job, not a few people then take the opportunity to take stock seriously. But is being a full-time investor promising?.
Becoming a full-time investor is not easy. Before starting to invest, of course, he must prepare funds to meet his daily needs for the next few months. Not to mention that investors must prepare an emergency fund to anticipate unexpected things. These funds are of course must be released. Meanwhile, the investment return is highly uncertain.
Finding investors who consistently make profits in the long term is very difficult. Moreover, these investors really live depending on the profit of the stock investment. Even skilled experts generally still keep their main job. They are still looking for income by offering stock investment training services, seminars, to private classes.
Actually being a full-time investor is not something impossible to do. It’s just that it takes a “supply” of knowledge and funds that are not small. So, the reason for not becoming a full-time investor is more due to financial factors. Investors are also often faced with demands for continuous profits, which in turn becomes mental pressure for investors themselves.
Therefore, for those of us who are still new to the investment world, it is better for us to continue working as usual while continuously learning stock investing. The reason to keep working or running a business is certainly much more stable than profit from shares. Whatever happens to the stock world, at least “kitchen necessities” are guaranteed.
The paradigm of keeping the main job actually makes investing much calmer and easier. That is why many people who are successful in investing in stocks stay busy with their daily routines. The main job is not considered a barrier but becomes a powerful tool to help invest in success.