Not all of us know a lot about stocks and what it means to invest in them. For any layperson, when you talk about stock and the stock market, I think about Martin Scorsese’s The Wolf of Wall Street. Let’s be honest for a second; I have a masters in linguistic and English lit; this could tell you how much I know about stocks and investing in them. However, my partner and roommate is an account’s major and works in the stock market, and he told me a lot about the stock market and why we should invest in it. So, let me transfer some of his knowledge to you. Come along with us, and let’s learn more about the pros and cons of investing in stocks.
What is the stock market?
The stock market, most often than not, is not a physical space but rather refers to a broad collection of exchanges and venues where people buy, sell and insure shares of publicly held companies. Some financial activities are conducted through an institutionalized formal exchange, and this can be either physical or electronic, or it can take place over-the-counter (OTC) marketplace. This operates under a defined set of rules and regulations. It is essential to know that the stock market can offer several benefits, and this includes the potential to earn dividends or even an average annual return of 10% on your investment. It is also very important to know that the stock market is very volatile and that returns on your investments are never guaranteed. One thing that you can do to decrease the risk of your investment is by diversifying your portfolio and by investing in different streams and companies.
Pros of investing in the stock market
1. It is the best way to stay ahead of inflation
It is important to know this, but historically, stocks have an average annual return of 10%, and this is a good way for you to spend your money and by investing it in the stock market. You know that you are placing therein a co0mpany that you trust will do good in the future. The 10% return rate on your investment is far more than the annual inflation rate and is a sure way to make the best out of your money. This means that you can look in the long run, and it is a way for you to buy and hold onto your stocks, even if their value temporarily drop.
2. You can make money in 2 ways
Most investors tend to buy stocks when they are low, and they tend to sell them when the price of said stock is high. They also tend to invest in fast-growing companies that will more than likely appreciate in value. This is why both day traders and buy-and-hold investors like these kinds of stocks, the former take advantage of short-term trends and the latter expect to see that company earn some earning and stock price over time. Nevertheless, they both believe that their stock-pricing skills allow them to outperform and use the market to their advantage. However, some investors prefer a more regular and steady stream of cash, and this is why they purchase stocks in companies that pay dividends and these companies usually grow at a moderate rate.
3. Easy to buy and sell
The stock market makes stocks more digestible for everyone and makes it easier to buy shares of companies. You can purchase them through brokers, online or via a financial planner; once you have an account, you can buy any stock that is currently on the market within minutes. You can use apps like Robinhood to buy stocks and sell stocks without commissions.
Cons of buying stocks
1. It can be an emotional roller coaster
Stock prices can rise and fall within seconds, and if you have a faint heart, then this is not the market for you because it is a real emotional roller coaster. At times, people tend to buy stocks at the highest out of greed and sell them when they are low because they fear they will lose in value later down the line. One thing you can do and that most investors will tell you not to do is not to stay fixated and constantly look at the price of the stocks because they continuously fluctuate. Check on them on a regular basis to make sure your investment is safe.
If you are buying stocks on your own, then you ought to do your due diligence and do your research on the company you are going to invest in. you’ll have to think if they are profitable in the long run and whether or not they are a safe investment. You must also read how to read financial statements and annual reports to stay ahead of the trend, and you should also follow the company’s development in the news. And it takes time to learn all these skills, and you also have to wait to learn by reselling your stock.
For me, the pros trump the cons when it comes to investing in stocks, which is why I started to invest in stocks, partly due to my partner. So, investing in stock is not as scary as people put it in, and this is why you need to start reading more about it and ask yourself if you can invest in them. Sound off in the comments section below and tell us if you want to read more about investment and stocks.