(Newswire.net — March 1, 2022) — You intend to invest in the stock market, but you wonder, what are the pros and cons of stock investing? But before anything else, what does stock investing mean? Well, in simple terms, stock investing means you own part of a company whose stock you have purchased. The company’s growth determines how your stock share delivers a return on your investment.
Historically, the stock market has been many investors’ target due to its generous delivery of attractive returns over time. But that doesn’t mean that these stock investors rarely encounter challenges. Stock investing is also a risky industry that has presented global investors with the possibility for profits and loss, risk and return.
As you plan to invest in the stock market, here is what we know about stock investing pros and cons.
The 5 key benefits of stock investing
It utilizes a growing economy
Usually, corporate earnings grow with a growing economy. Why? Economic growth means creating more jobs which then creates income that ultimately creates sales. When companies offer fatter paychecks, they greatly boost consumer demand, driving more revenues into corporate cash registers. Over time, stock investing helps you properly understand the business cycle’s phases from expansion to peak, contraction, and trough.
Stocks are easy to purchase
Nowadays, technology and multiple other factors have made it easy for investors to buy company shares. Ideally, you can purchase company stocks through a financial planner or a broker. You can also buy corporate stocks online. For instance, Everlasting stocks from Motley Fool have offered portfolio-building resources and monthly stock recommendations to investors wishing to purchase stocks that outperform the market. It takes minutes to buy stocks once you have created an account.
Stock investing is the best way of staying ahead of inflation
Over the years, various reports have indicated how stocks have been yielding generous annualized returns. A good example was the 15.43% ten-year annualized return for the S&P 500 as of 31st January 2022. This annualized return was better than the overall annualized inflation rate. What does this mean? It means that you must consider having an extended time horizon. This way, you can comfortably purchase stocks and hold them even if their value drops temporarily. You can check VectorVest to know more about inflation and stock investment.
You don’t need huge amounts of money to start
Today, stock buying has become so affordable to the extent of most retail brokers like Charles Schwab, allowing investors to purchase and sell stocks commission-free. Fidelity and many other brokers also don’t ask for account minimums. Additionally, suppose the corporate stock you intend to purchase is too expensive for you. In that case, you can opt to buy fractional shares if you encounter a broker that permits such investment types.
Stock investing allows you to make money in two ways
Most investors’ strategy is to buy low and later sell high. And that’s one of the reasons fast-growing organizations with appreciating value often experience high traffic of interested buy-and-hold investors and day traders. One group expects to take advantage of the company’s short-term trends, while the remaining group hopes to see the company’s stock price and earnings growth over time. All these stock investors believe that their stock-picking skills let them outperform the stock market. Conversely, other investor groups prefer a standard stream of cash where they only buy stocks of organizations that pay dividends.
The key cons of stock investing
Time
When purchasing stocks by yourself, you ought to do a thorough research of each company to establish its profitability projection before buying its stock. It also helps to learn how to read and interpret annual reports and financial statements and follow up on its developments on various news channels. Additionally, you must conduct close monitoring of the stock market itself. Why? It is because even the leading company’s price might fall in a market crash, a market correction, or a bear market.
Risk
It is good to know that your entire investment could disappear into thin air with stock investing. If you don’t perform thorough research on where to buy stocks, and the company performs poorly, you might risk losing your entire investment. At this point, investors tend to sell the company’s stocks and shares, thus sending the stock price sinking. But selling stocks at this point means losing your initial investment value. And if you cannot afford to lose your original investment, it would help to consider buying bonds.
Paying common stockholders last
Nowadays, most companies tend to pay preferred bondholders and stockholders first if they go broke. But this phenomenon only happens if the company is declared bankrupt. So, the recommendation is to identify a well-diversified portfolio that should assure your safety if the company that you chose to invest in goes under.
Bottom line
Stock investing comes with clear benefits and drawbacks, as seen in this piece. Historically, stock investing has helped millions of investors generate generous long-term returns. However, investors cannot bury their heads in the sand over the possible significant risks of investing in stocks. These risks are spreadable across different sectors, geographies, and stocks in the diversification process.
So how much of each investment type should you target? According to financial advisors and planners, the recommendation is to set up your asset allocation based on the financial goals and the economy’s position in the business cycle.