The stock market provides individuals and institutions with one of the ways to build wealth or meet their medium-term to long-term financial goals. Purchasing stocks of companies traded in stock exchanges or investing in the stock market as part of the overall financial portfolio has notable advantages. Of course, there are disadvantages or drawbacks.
Pros of Investing In The Stock Market: Reasons Why You Should Invest in Stocks
Note that the advantages of investing in the stock market center primarily on the supremacy of stocks over other assets and securities. There are more specific benefits in doing. Individuals and institutions, especially beginners, should take note of these advantages.
Below are the reasons why you should invest in stocks:
• Alternative to Bank Savings In Beat Inflation: People are actually losing money when they let their funds sleep in their bank accounts. The stock market, specifically notable stock indices, has delivered returns above the average inflation rate of developed and developing countries. One of the benefits of investing in the stock market is that it can help in building wealth for retirement or the education of children.
• Ideal For Taking Advantage Of Economic Growth: One of the ways to experience economic growth or the growth potential of a particular economy is to invest in its stock market. The market can mirror the gains of a growing economy. It is also important to note that companies such as Apple and Amazon have grown considerably over the decades despite different instances of economic downturns.
• Different Ways To Purchase And Invest in Stocks: There are two general ways to purchase and invest in stocks. The first is through direct investing using offline and online stock brokers. Online-enabled platforms provide a readily-accessible medium for selecting, buying, and selling stocks. The second is through indirect investing using intermediaries. Examples include mutual funds, unit-linked trust funds, and even universal life or variable life insurance plans.
• Wide Selections Of Different Companies: Another advantage of investing in the stock market is the selection of different companies from different industries and markets for a diversified portfolio. An investor can match his or her risk appetite depending on the type of company or the industry in which it operates. Some stocks provide more resilience while others have higher return potentials.
• Notable Liquidity Compared To Other Assets: High liquidity is also another benefit of investing in stocks. The stocks owned by an investor can be easily sold on different trading platforms or through brokers. Note that cash is the most liquid asset. However, when compared to assets such as precious metals or commodities, as well as real estate, stocks are more liquid because of the existing demand and presence of platforms.
• Security or Assurance From Government Regulation: Companies traded in a stock exchange are regulated by the government. Furthermore, established and prominent companies have corporate governance policies intended to promote the interest of their shareholders and stakeholders. Even the transactions in the market or transpiring in exchanges are regulated and overseen by the government.
Cons of Investing In The Stock Market: Reasons Why You Should Not Invest in Stocks
There are also reasons why an individual or institution should not invest in the stock market because of its disadvantages that center on risks. It is important for them to understand these issues or drawbacks before they start purchasing stocks.
Below are the reasons why you should not invest in stocks:
• Provides High Returns But Also Has High Risks: One of the disadvantages of investing in the stock market is that it is riskier than other assets such as cash and bonds, as well as precious metals like gold. The market has a volatility level similar to cryptocurrencies and the forex market. It is important to note that investments that provide higher potential returns have also higher risks.
• Needs Research and May Require Expertise: Direct stock investing requires an individual to spend time researching companies and other market reports to build his or her portfolio. Furthermore, there is also a need to research the backgrounds of brokers or learn how to use online trading platforms. Professional investors and fund managers use fundamental and technical analyses, as well as other related tools, to guide them with their investment decisions.
• Factoring In Emotions and Herd Behavior: Remember that the market is volatile. Another disadvantage of the stock market is that a sizeable portion of investors are not emotionally resilient and respond to speculations. These also represent one of the reasons why one should not invest in stocks, especially if they are too emotional or have the tendency to follow the lead or heed the reactions of other investors.
• Creating and Maintaining a Diversified Portfolio: Another reason why one should not invest in stocks is he or she intends to channel all of his or her funds to a single or few stocks. One of the keys to successful investing is diversification. One should choose stocks across different industries and markets, as well as invest in other assets such as bonds or commodities to make his or her entire portfolio as resilient as possible.