Just like any other financial instrument, stock market investments have their own set of benefits and risks. The stock market has delivered generous returns to investors over time, but stock markets also go down, leading to huge losses. If you have been planning to invest in the stock market for a while now, you must know everything about this investment type. For better understanding, we have listed down the top advantages and disadvantages of investing in stocks.
Pros of Stock Market Investment
Highest Returns
The most significant advantage of stock market investment is that you can earn a lot in a short period. If you buy low in fast-growing companies and then sell them at higher rates, you are surely gaining high returns on your investments. And it isn’t necessary for you to buy and sell shares in a single day. If you see that the prices of the stocks you hold increase over a week or even months, you can wait for the right time and then sell your shares. In such a case, you will become a buy-and-hold investor.
High Liquidity
Unlike other investments, such as real estate and fixed deposits, you can easily and quickly access money in the stock market. So, if you suddenly need money for an emergency or any other reason, you are free to sell your stocks and gain liquidity instantly. This means you don’t have to wait for weeks and months before getting access to your money.
Easy to Buy
Once you set up your stock trading account, you can select and buy different types of stocks within minutes. Several online brokers even let you buy and sell shares today for free. If you don’t wish to buy stocks online, you can get in touch with a broker or a financial planner and make your purchases through them.
Perpetual Ownership
Stocks do not have any maturity period, unlike other investment options. You own the stocks and represent ownership till the company decides to privatize itself, ceases operations, or when you sell those stocks. As you have the sole ownership of the stocks you buy, you can decide when you wish to sell them. Within seconds, you can sell, buy and trade as you see fit.
Long-term Opportunities
As you are the owner of your shares, you can decide how long you want to hold the shares. Some companies and sectors may not value differences on a daily or weekly basis. So, you can wait for years before selling them on high and gain profits. If you are comfortable making periodic investments and are comfortable with taking profits over the years, stock market investing can be an ideal investment choice there as well.
Easy to Sell
Apart from the sole ownership of your stocks, even the stock market allows you to sell stocks at any time. Using the account you have been using for trading in the stock market, you can select the shares you wish to sell, click on ‘Sell’, and you are done. You have to wait for the liquid cash amount to reflect in your bank account.
Easy Diversification
Stock market investment is highly diversified. Using a single trading account, you can invest in a number of stocks in different countries, sectors, and industries. There is no limit on stock marketing investment as such in Singapore until you have enough capital to invest and reinvest.
Cons of Stock Market Investment
Time-consuming Research
Researching for the best companies to invest in can be time-consuming as you have to look for companies that will grow in the future. You have to go through different companies to determine how profitable they will be and in how many months or years they will become highly profitable. Not only this, but you also need to learn and master the art of reading the financial statements of companies and picking the best options for your investment. All of this will take time and experience.
Lack of Expertise Means Loss
As mentioned, it takes time to master the art of buying and selling stocks smartly and gain profits from them. If you aren’t a pro at stock market investing, you may invest in the wrong sectors, industries, and companies. You may end up buying high and selling at an all-time low out of fear. This way, you will see all your investments disappear and experience heavy losses.
Missed Profits
You must have noticed that stock prices fluctuate dramatically in no time. Stock prices fall and rise second-by-second. If you are looking to make high profits in stock marketing, you will have to stay updated with these changes. However, if you miss out on any of these rises or falls in stock prices, you might miss out on buying or selling stocks at the right time. This might lead to missed profits that you would have potentially made.
Risk of Loss
Larger losses in stock markets is a less common thing. Big-time market crashes and companies getting shut are the biggest threats to your investment, but they hardly take place. However, when they do, you lose every dollar that you invest, and there is no way to recover that money. This implies that there is no 100% guarantee on your investments.
Very often, investors only pay attention to the pros or advantages of any investment type. Don’t make this grave mistake and analyze both, the pros and cons thoroughly. After understanding them well, you will be able to take the right decision.
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