If you’re looking into investment stocks, you may find yourself with a lot of questions of how to get started. Whether you’re hoping to find out more about investing in industries or investing in companies, there is a lot of information to wade through, so first, we believe that you need to have a clear understanding of the pros and cons of investing in stocks. There is a lot of information out there which can get confusing for a total beginner, but to help you get started, we have put together our top points we feel you need to know before continuing your investment journey further.
3 Pros of Stock Investing
1. Advantage of Growing Economy
As the economy grows so do corporate earnings, and so this economic growth will create more jobs and therefore more income which translates into sales. We don’t need to explain why the increase in income offers greater boost in consumer demand, but it also drives more revenues into companies’ cash registers.
2. Stay Ahead of Inflation
Although it means you must have a longer time horizon, investing in stocks will help you stay ahead of inflation rates. This is because, historically, stocks have an average annual return of at least 10%, which is better than the average annualized inflation rate. This means that you can buy and hold even if the value temporarily drops.
3. You Can Make Money in 2 Ways
By investing in stocks, you can make money in 2 ways. You can opt to buy low and then sell high, and to do this you should invest in fast-growing companies that appreciate in value. This way of making money is attractive to both day traders, those who prefer to buy and sell stocks in one days work, and buy-and-hold investors, those who are in it for the long-term. Day traders hope to take advantage of short-term trends, while the latter expect to see the company’s earnings and stock price grow over time. It is up to you to decide which type of stock investor you want to be. This can actually be quite tricky as any profit or loss is now considered a capital gain or a capital loss, and therefore must be reported. However, it is easy to file taxes with a CPA as they will know how to handle your capital gains and losses accordingly.
3 Cons of Stock Investing You Should be Aware Of
1. There’s Always Risk
Of course, the most obvious disadvantage of investing in stocks you need to be fully aware of before starting is the level of risk involved. You could stand to lose your entire investment if a company does poorly as their investors will most likely sell their shares and then the stock price will plummet. Plus, if you decide to sell in this instance, you will lose your initial investment so consider whether you can afford to lose this?
2. It Takes Time
If you’re a single investor working alone, then it can eat up a lot of your time. When buying stocks on your own, you will spend a lot of time doing to appropriate research into each company to determine how profitable you think it will be before you buy its stock. You will also have to learn how to read financial statements and annual reports, as well as follow your company’s developments in the news. All of this will take up a lot of your time, not to mention the time spent having to monitor the stock market itself.
3. A Whirlwind of Emotions
There is no denying that stock prices rise and fall second-by-second, and individuals often tend to buy high, out of greed, and end up selling low, out of fear. In order to keep yourself grounded in the emotional rollercoaster that is the stock market, you will need to do your best to not constantly look at the price fluctuations of stocks, and just be sure to check in on a regular basis instead.