Stocks are one of the most popular investment types; however, like everything, there is still a certain amount of risk involved. On top of this, everyone is different, and what might work for some isn’t the best option for others. This is why it’s good to assess the advantages and disadvantages, to truly see if it’s beneficial for your personal financial goals.
Sound interesting? Then keep on reading! Below, we are going to discuss the different pros and cons of investing in stocks so that you can make the big decision.
Let’s get started.
Pros of investing in stocks:
You can build your wealth
Stocks can bring incredible returns, which means that when done correctly, it can be a great way to achieve your financial goals. Yes, there are risks, which we will discuss below, but some individuals can easily turn $10 into $100.
Obviously, you have more earning potential if you are in it for the long-term, but ultimately, there is unlimited earning potential. On top of this, with the growing economy, buying now may mean you can get discounted options that will significantly increase in the future.
So, let’s assume that we have a company like VW, the famous German auto manufacturer.
When VW went public and became traded on the stock market, the shares forecast, or VW aktien prognose, as they would say in German, tells us how good a buy their stock is and whether it could return a good investment.
They are easy to purchase and trade
Compared to other investment types, stocks are very easy to access, making them perfect for those that want to be able to view their options easily. With so many different online brokerages, all you need to do is simply sign up and log on.
There are even plenty of tutorials online for beginners. Check out online stock trading Canada if you are interested in getting started.
There are many types of stocks
Another great benefit of stocks is that it is such a vast area to look into. With so many different business niches, you can choose from a huge selection, no matter what your individual preferences are. From travel, health, and technology to entertainment, retail, and science. The options really are endless.
Alongside this, there are actually different types of stocks. These include:
Common Stock: Represent ownership of a company in which the individual can claim a portion of profits.
Preferred Stock: Represent ownership of a company in which the individual is guaranteed a fixed dividend forever.
It can be a good way to diversify your portfolio
Owning too much of one thing can make your investment portfolio risky. Stocks are a great way to diversify it, especially if you choose to look at overseas markets. Remember, the more assets you have, the more you have to fall back on if something does fail.
Check out how to diversify your portfolio for more information.
They are a liquid asset
One of the main advantages of stocks, which is a significant selling point for many individuals, is that they are a liquid asset.
This means that you can sell them and have money back almost immediately if you need to. This is very different from other investment types, such as real estate, which can take weeks or months until a sale is made.
While you don’t want to go getting rid of everything unless you really have to, this flexibility can be of major importance. Especially to beginner investors who haven’t yet been able to diversify their assets yet.
Cons of investing in stocks:
Returns aren’t guaranteed
While most markets do offer a 10% return, it’s important to know that there is no 100% guarantee. If something happens and a stock falls, there is a good chance that you are going to be left with nothing.
While this situation is unfortunate, it’s all part of the risks that come with such an investment. Experts recommend keeping your money invested within the company for as long as possible in order to get back your 10%, but again, it’s not guaranteed.
Money doesn’t grow overnight
Above, we mentioned that stocks are considered a liquid asset, and while it is an advantage, you also need to consider the timing. Money doesn’t grow overnight, and it can take years before you finally start seeing a significant and substantial profit.
If you’re not patient and want to generate a regular income, then it’s not the right investment type for you. However, that doesn’t mean it isn’t something that you can have on the side. In the future, you’ll definitely be grateful for it.
The market is volatile
Investing is always going to be risky, and the stock market is no exception. Even by doing your best to analyze and predict a company’s success, things can always happen. Just take the recent pandemic, for example. BEACH stocks, which include Booking, Entertainment, Airlines, Cruises/Casinos, and Hotels, have all been significantly impacted.
Nobody can see the future, so you have to be prepared to both rise and fall.
It’s easy to lose money if you’re not experienced
While selling and trading stocks is easy with all the different online platforms, it doesn’t mean that it’s simple to understand.
Without adequately researching the right stocks to choose, you can lose vast amounts of money. For example, things like emotional buying, frequent trading, overpaying fees, and attempting to time the market are just a few of the most common investing mistakes. Without being careful, you can end up in debt that will be very hard to get out of.
There are hidden expenses
It’s easy to think that your only real cost is that of the stock itself, but that is actually far from the case. When you both buy and sell a stock, there will be an extra fee charged by the brokerage you use.
Sometimes, you may even get taken advantage of, which is why it’s very important to do research into these first.
Alongside this, if you decide to hire a financial advisor to help guide you with stock choices, you also need to pay their standard fee. At the end of the day, all of these things can add up to be a significant expense, which can go to waste if your investment does crash.