The reality is there is a whole array of different investment opportunities other than stock market investments. However, stock market investment is vital to long-term investment strategies such as pension plans and the like. There are a number of issues to consider when looking at alternatives.
Liquidity
The vast majority of stock market shares have a certain degree of liquidity which can vary significantly. However, there is liquidity. If you look at investments such as physical property then yes, there will be buyers but converting property asset into cash in a short space of time can be challenging. Indeed, some investors looking to cash in their property assets in double quick time may need to offer some kind of financial incentive to buyers.
Spread of investments
The stock market takes in every sector of business you can think of, companies of all sizes and companies with exposure to markets around the world. The reality is that without the stock market it would be almost impossible for any private investor to create a similar spread of investments without greater risk. As we all know, one of the main keys to long-term investment success is spreading your risk.
Unit sizes
Many people also forget that when buying stocks and shares you can buy one share or thousands of shares. When buying a $250,000 property, that is your investment, you will need to invest the full $250,000 to purchase the property. So, the relatively low unit size when investing on the stock market, together with the spread of investments, is extremely attractive for short, medium and long-term investors.
Switching investments
In tandem with liquidity, when looking to switch investments you can literally sell a share over the telephone and receive the proceeds in just a couple of working days. If you’re looking to switch your funds from a particular company or industry this is relatively straightforward when buying and selling stocks and shares. However, if you are looking to switch a property in New York to a property in Los Angeles this is not as straightforward as dealing in stocks and shares on the stock market – it will take much longer!
Following the economy
In general, if local and international economies are doing well then you can pretty much guarantee that stock markets will follow suit. In the good times there tends to be a feelgood factor which can increase the value of shares (although this can negatively impact the value in difficult times) as the future tends to look rosy. If you buy an individual asset such as a property in a particular area then you are more dependent upon the local economy for long-term growth in asset values.
Summary
In reality, whatever type of asset you are looking to buy outside of the stock market, there will be numerous companies offering the same type of exposure listed on the stock market. Liquidity, spread of investments, unit sizes, opportunity to switch investments and following the general trend of the economy are all very important characteristics of stock market investment. However, this is not to say that it is not possible to make good returns on real estate assets, as one example, in the longer term.