It is turning into something of a common practice amongst young people hoping to increase their wealth, to invest in the stock market. Before we do that, however, we should be knowledgeable and well-versed in the ups and downs of the stock market. We’ve reached out to financial experts to inform you about all you stand to gain and lose in the stock market.
Advantages
Good Profit Returns: “Over the long term, invest in the stock market has outperformed every other asset class, realizing an average annual return of roughly 9%. In terms of investments, investing in the stock market doesn’t require a large amount of money to get started. You can open an investment account at most brokerage firms for $5 to $100. As such, it’s easy to get started, especially compared to other investments, like real estate, which may require a lot of money to start. There are large tax advantages to investing in the stock market, especially if done inside tax-deferred accounts like a 401k or IRA.”
Robert Farrington, Founder, The College Investor
“Takes advantage of a growing economy: Corporate earnings rise in conjunction with the economy. This is because economic growth leads to the creation of jobs, which leads to the generation of profits, which leads to the generation of sales. The bigger the paycheck, the higher the market demand, which means more money in the bank for the company. It aids in the comprehension of the business cycle’s four phases: growth, peak, contraction, and trough.”
Jason McMahon – Digital Strategist, Bambrick
“Massive capital gains: If you invest wisely, your stocks can appreciate dramatically. Annual returns on these assets have often exceeded 100%. Returns on stocks have historically outperformed inflation in the majority of situations. This is not always the case for the majority of other investment options. That is why some people believe that investing in the stock market is the safest way to accumulate money. Passive income: There are two straightforward ways for investors to benefit from stocks: Dividends and Capital Gains. Each stockholder is a partial owner of the company, and if the company increases in value, the shareholders typically receive a portion of the profits in the form of dividends. Long-term growth potential: The historical record indicates that stocks, on average, have an upward trend over the long term. Stocks have traditionally produced higher long-term financial returns than other investment forms. According to fund manager Peter Lynch, regardless of the conditions, stocks would still outperform bonds. Liquidity: One of the best features of stocks is that the majority of them are liquid, which ensures they can be purchased or sold at a reasonable price. If you come across a stock you like, you can easily purchase it. If you need immediate cash, you can sell the stock.”
Tanya Zhang, Co-founder of Nimble Made
Disadvantages
Not meant for short-term growth: “Investing in the stock market is designed for long-term growth. In the short term, there can be huge swings, just like we saw last March when the stock market dropped 50%. If you need your money in the short term, investing in the stock market is probably not the best idea. If you invest inside tax-advantaged accounts, you may face a penalty if you withdraw your money before retirement age.”
Robert Farrington, Founder, The College Investor
“Volatility: The primary drawback of stocks is their volatility. Any investment involves a risk. This means you risk losing money – possibly all of it. No matter how secure a stock seems, the price will fall and the business can even fail. High risk: Investing in equity shares is a riskier proposition than other types of investments such as debt. The money is invested based on the investor’s confidence in the company. There is no collateral attached. Stock trading is a type of business investment and must be regarded as such. Business entails danger, and may go awry for a variety of reasons that are often beyond its control. Time-consuming: Investing in stocks involves a significant amount of homework and analysis. That is not to say that analyzing a stock is a bad thing; rather, it simply takes more time and effort to choose the right stock than it does to choose the right investment plan for your money. And even then, no guarantee exists that the stock will follow the expected direction. Limited control: Since an equity investor is a small investor in the company, using voting rights to influence the company’s decisions is difficult. Although shareholders are true owners of the company, they do not have all of the company’s rights and ownership.”
Tanya Zhang, Co-founder of Nimble Made
“Risk: It’s possible that you’ll lose your entire investment. Investors can sell a company’s stock if it performs poorly, causing the stock price to plunge. You will lose your initial investment if you sell. Mutual Funds are a good option if you can’t afford to risk your initial investment. If you make money, you must still pay capital gains taxes. Time: If you’re buying stocks on your own, you’ll need to study each company first to see how profitable you think it will be. You’ll need to learn how to read financial statements and annual reports, as well as keep up with news about your business. You must also keep an eye on the stock market, as even the best companies’ stock prices will fall in a market reversal, crash, or bear market.”
Shad Elia, CEO of New England Home Buyers
Stock Market- Good Investment with the Risk
“The stock market is both an outstanding place to invest your money and a risky game to play. If you invest your money in something like a market-index fund and leave it for the long term, you can expect an excellent return on your investment, even during economic downturns like the one we’ve experienced in the last year. Day trading or investing in specific stocks, on the other hand, is incredibly risky. Even professionals who do this usually don’t beat those market-index funds over the long term, and while the market has been strong through the past year, there has also been a lot of volatility.”
Carter Seuthe, CEO, Credit Summit
