The first cause is a return which is better than the other alternatives.over the long term, the stock market gives an average annual return of 10% and you are going to earn more like 7% after inflation(supposing inflation rate to be at most 3%)
Most of the banks are giving an annual return of 4 % in saving account in India.What are you getting in real is the return of just 1 % every year.
Note- Compounding is applicable in both.
What happens when you buy stocks
Ever wanted to own part of a large and growing business? When you purchase stock means you are owning a part of this business and you become a part owner and you are enabled to a share of profit and asset of the business. So, basically
1.owning stock means owning part of the company (equal to the value of Number of shares you owned) and you become the shareholder of the company.
2.Invested Money works for you 24*7 to make money.
3.Invested money in stocks will grow much faster than money in saving the account.
4.All shareholders get one vote per share to elect the board of directors at the annual meeting.
You profit from stocks one of two ways
1.Profits can be paid out in the form of dividends. This is cash that paid to you on a regular basis for being a shareholder.
2.The price per share increases when the business grows and this way when you decide to sell your share you get the profit per share with the increased value.For example, you bought 100 shares of “XYZ” company previous month at the rate of 5 Rs per share and now the share value has increased to 7 Rs per share.when you sell your shares you get a profit of 2 Rs per share.so your profit will be 2*100=200Rs.
While money kept in saving accounts gets eaten by inflation which results in the return of very less percentage of your investment.