Thinking of investing in stocks? Find out what are the pros and cons first!
When you think about investing in stocks you must be prepared for the benefits as well as the disadvantages of this kind of investment. You cannot make a decision of investing in stocks until you have understood how you can benefit or lose by making the investments. In this article, we are giving you a set of benefits and disadvantages which we believe will help you make an practical, well-informed decision.
[su_quote class=”cust-pagination”]I made money. What am I gonna invest in? Stocks? No. I’m going to invest in music.
~Melissa Auf der Maur [/su_quote]
The Benefits of Investing In Stocks
Stock ownership gives you the benefit of taking advantage of the growing economy. Corporate earnings have a tendency to grow with the economy because economic growth can create income. The better paychecks people receive will ensure an increase in consumer demand which in turn will drive additional revenue into the cash registers of companies. It also helps you understand the business cycle and its various phases.
You have an opportunity to stay ahead of inflation if you have made up your mind for investing in stocks. Stocks average and annual return is 10% which is better than the average annual inflation rate which stands at 3.2%. It also indicates that you have a longer time horizon. You can decide on investing in stocks and continue to hold them even if they drop in value marginally.
Investing in stocks is easy because the stock market makes it convenient for you to buy shares of companies. You can purchase stocks through a broker, a financial planner and even online. After you have set up an account you can begin buying stocks in minutes.
You can make money in multiple ways when you decide to invest in stocks. It is common to notice most investors buying low and selling high. People usually are interested in investing in stocks in companies that are appreciating in value. This is an attractive option both for day traders and buys to hold investors. Day traders are generally looking to take advantage of short-term trends and investors are expecting to notice the company’s earnings and stock price increase over a period of time. Some investors prefer a regular stream of cash and therefore they decide on investing in stocks in companies that are paying dividends. The companies are generally not the fastest growing but they are dependable.
The Disadvantages Of Investing In Stocks
You could lose your entire investment if a company does not do well because investors will begin to sell the stock sending the prices plummeting. When you decide to sell after investing in such stocks you are likely to lose your initial investment. Your only method of safeguarding yourself will be by investing in bonds. You can get tax breaks if you lose money on stocks just as you also have to pay taxes whenever you make money after investing in stocks.
Stockholders in a company are highly disadvantaged because they are paid last whenever the company is unable to function for any reasons. Preference is usually given to bondholders and preferred stockholders who get the first options on the payments.
Investing in stocks will take some time from you because you need to conduct proper research of every company before you are finally ready to begin investing in stocks. You have to learn how to read financial statements and annual reports and also keep a tab on the daily news to follow the developments of the company. You will also need to monitor the stock market because the prices of stocks of the best company can fall in a market crash or a market correction.
Remember: It can be an emotional roller coaster. Especially since stock prices have a tendency to increase and decrease every few minutes. That is why many people have shown tendencies to buy high when the prices are great and sell low simply because they fear losing more money.
[su_quote class=”cust-pagination”]I don’t think it makes any sense for an individual to invest in common stocks unless they know the company, work at the company, and so on.
~Eli Broad [/su_quote]
Before you consider investing in stocks you are advised to go through this article and prepare yourself emotionally and mentally for the tricky situations you are likely to come across frequently.
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