by Susan Paige
Approximately 55 percent of Americans currently own stocks. That’s a significant drop from the 62 percent who owned stocks prior to the 2008 crash.
Although the crash is more than a decade behind us, lots of people are still wary of investing their hard-earned money in the market.
Are you part of this group? Do you have concerns about buying stocks?
If you’re on the fence, read on to learn more about the advantages and disadvantages of stocks and stock market investing. This information will help you determine whether or not it’s a good option for you.
Advantages of Stocks
There are a lot of great benefits you can reap when investing in the stock market. The following are some of the primary reasons why people choose this type of investing:
Lots of Earning Potential
When you invest in the stock market, you have the potential to earn quite a bit of money without having to spend a lot or put in a lot of effort. If you make the right investment decisions, you can grow your wealth quickly and have plenty of money set aside for your retirement or for a rainy day.
Easy Access to Funds
As a stock market investor, it’s easy for you to gain access to your money, too. Other types of investments, such as real estate and CDs, have a lot of hoops you have to jump through before you can access your funds (and, sometimes, you just have to be patient). With stocks, though, you can buy and sell whenever you want.
There’s a lot of flexibility in the way you can invest in the stock market, too. For example, you can allocate your earnings to your retirement fund or to another account. You also have plenty of options when it comes to the type of stocks that you buy and the types of businesses in which you invest.
Disadvantages of Stocks
At the same time, the stock market isn’t all unicorns and rainbows. There are some disadvantages to investing in stocks as well, including the following:
One of the main downsides to investing in the stock market is the fact that the market is very volatile. You can’t always predict what’s going to happen or how certain world events will affect the value of your stocks.
The crash of 2008 is a major example of market volatility, but there are plenty of other shifts that can happen that can affect your stock value in a smaller (yet still significant) way.
Can Be Time-Consuming
It takes some time for someone to become a savvy investor. They have to research different companies to figure out where they should be investing their money, for example.
If you don’t have time for this, you’ll need to work with someone you trust to advise you, or you may find that you’re not getting as much out of your investments as you’d like.
Can Be Emotionally Draining
Investing in the stock market can play with your emotions in a major way. It can be exhausting and stressful to watch the value of your stocks decrease, especially if you’ve invested a lot of money in them beforehand.
Some people find out (usually after it’s too late) that they don’t have the right temperament or the appropriate level of emotional resilience for stock market investing.
Tips for Investing in the Stock Market
If you’ve decided that the advantages of investing in the stock market outweigh the disadvantages, make sure that you’re a smart investor. Here are some tips to keep in mind to ensure you make the best investment decisions for yourself and your family:
Set Clear, Long-Term Goals
It helps to know exactly what you want to get out of your stock market investments before you dive into the world of investing.
Do you want to have more money set aside for your retirement? Are you saving up for a big purchase like a house or for your children’s college tuition?
The clearer your goals are, the easier it’ll be for you to avoid emotional decisions and make smart choices about where you invest your money.
Know Your Risk Tolerance
Think about your risk tolerance, too.
Are you the type of person who can maintain a cool head when the market makes a sudden shift? Are you someone who’s going to panic when the price of a stock dips out of nowhere?
If you fall into the latter category, you can still invest. You need to be more conservative with your investments, though, to avoid causing yourself unnecessary stress.
Diversify Your Portfolio
It’s always a good idea to diversify your portfolio. This involves investing in a variety of different stocks, bonds, and mutual funds.
The more diverse your portfolio is, the less likely it is that you will lose a significant amount, even when the market takes a turn for the worst.
Consider Stock Loans Instead of Selling
There’s a case to be made for stock loans instead of selling stocks outright.
If you find yourself in a situation where you need money right away, consider a stock loan. This allows you to borrow money and use your stock as collateral.
For many people, this is a lower-risk option than putting up a house or car. It also allows you to get your hands on money right away, as the stock loan approval process is very straightforward.
You Know the Advantages and Disadvantages of Stocks: Now What?
As you can see, there are both advantages and disadvantages of stocks and stock market investing.
Now that you know more about these pros and cons, do you think stock market investing is a smart strategy for you?
If you’re ready to start investing, keep the tips listed above in mind as you move forward. They’ll help you become a savvy investor in no time at all.
Do you want to learn more about investing? If so, check out some of the other stock-related articles on our blog today for more information.