Stock Investing is popular for many good reasons. However, there are also reasons why you shouldn’t entirely depend on them for your portfolio. In this article, we’re going to unravel the good and the bad sides of stock investing.
You can benefit from a growing company.
As the economy exhibits growth, corporates earnings also hustle and bustle. Economic growth spurs income, and more income means higher consumer demand that drives more revenues into companies’ cash registers. To better take advantage of this, you should study on the business cycle.
Stay ahead of inflation.
A quick look on historical data will tell you that stocks have averaged an annual return of 10 percent. Compare that to the average annual inflation rate of 3.2 percent.
However, to enjoy this benefit you must have a long-term horizon so you can buy and hold even if the value temporarily sips down.
Stocks are easy to buy.
Through the stock market, you can buy shares of companies. You can purchase them with the help of a broker, a financial planner, or an online dealer. After you’ve set up an account, you can buy stocks within minutes.
Earnings money in different ways
Most investors prefer to buy and hold the stock until its price goes up, then they sell it. They gravitate towards fast-growing companies that go up in value. This is quite appealing to both day traders and buy-and-hold investors.
Day traders try to take advantage of short-term trends while buy-and-hold investors expect to see the company’s earnings and stock price grow over time.
Stock-picking skills let them outperform the market. Other investors prefer a regular stream of cash, buying stocks of companies that pay dividends and such companies have moderate rate of growth.
Easy to Sell
The stock market enables you to sell your stock at any time. That’s important if you suddenly need some hard cash quickly. Since prices are volatile, you may run the risk of being forced to take a loss.
Now here are some of the disadvantages:
You could lose your whole investment
If a company performs poorly, investors usually sell its stock, sending its value slipping. When you sell, you will lose your initial investment. If you can’t afford to lose them, try minimizing the risks through bonds.
You can get an income tax break if you lose money on the stock. on the flip side, you have to pain the capital gains tax if you make money.
You need to spend a lot of time.
You have research each and every company to find how profitable you think it will be before you buy stock. You should learn how to read financial statements and annual reports, as well as follow you company’s developments in the news.
You also have to monitor the broader stock market’s status since even the best company’s stock weakens during a market correction, a market crash, or a bear market, which can be devastating in various levels.