Introduction
Stock market investment refers to the act of putting money into stocks (or shares) of publicly traded company with the aim of growing wealth or gaining regular income through dividend. It is one of the most popular ways to grow money over time. Stock market investment can be considered as wealth building tool for long-term investors. Investing in the stock market has several benefits as well as some drawbacks that are explained in this post.
Pros Of Stock Market Investment
Some of the major advantages of investing in stock market are as follows:
1. High Liquidity
One of the major advantages of stock market investing is liquidity. Stocks can be bought or sold through brokers easily and quickly. It means investments can be converted into cash within few hours.
2. Ease Of Access
Investing in stocks is more accessible than other forms of investment options because of low entry barrier. Even beginners can start instantly with small amount of investment.
3. High Returns Potential
Stocks investment can provide high return over the long term compared to other options such as real estate investment, bonds, saving account etc.
4. Hedge Against Inflation
Stock market investing provides protection against inflation. It is better to make investment in stocks than holding cash because it helps grow money faster than the rising cost of living.
5. Ownership In Companies
It gives investors partial ownership in companies. It provides voting right and entitles a portion of profit earned by the company.
Cons Of Investing In The Stock Market
Major drawbacks or disadvantages of stock investments can be highlighted as follows:
1. Rapid Price Fluctuation
Market volatility is one of the main drawbacks of stock market investment. Stock prices can be fluctuated due to several factors such as economic condition, crisis, unfavorable news etc. It may cause substantial losses to the investors.
2. Not Guaranteed Returns
Past performance of the company does not predict the future results of the business. Various factors like market condition, economic downturns, political factors etc, affect the business performance. In this situation, investors may loose partial or total investment. So, it does not guarantee returns like in saving or fixed accounts.
3. Requires Knowledge, Research And Time
Stock market investing demands significant time, research, effort and knowledge. Investors should understand company fundamentals and financial statements, they should analyze market trends before making an investment.
4. Emotional Stress
Rapid market fluctuations may cause fear and anxiety for new investors.
