Discuss four reasons to invest in stocks

Question

What will be an ideal response?

Answer 1

Answer: Over time, common stocks outperform all other investments. Although stocks aren't guaranteed to give you any return, they usually give you a worthwhile return.
Stocks reduce risk through diversification. When you include in your portfolio different types of investments that don't move (that is, the rate of return doesn't fluctuate) perfectly together over time, you're able to reduce the risk in your portfolio. Stocks don't move in the same manner as other investments such as bonds, and each stock moves in its own way. Holding stock from multiple industries can greatly reduce your risk.
Stocks are liquid. You can't be assured of the price you'll get when you want to sell your stock, but you won't have difficulty selling it. The secondary markets for common stock are extremely well developed, and as such, you will be able to sell your stock– with minimum transaction costs–whenever you want.
The growth in your investment is determined by more than just interest rates.With some investments, the potential for price appreciation is largely a function of interest rates going down. But with common stock, the value isn't a slave to interest rates.