Sun. Apr 5th, 2020

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Pros and Cons of Stock Market

4 min read

 

Every person who saves money is always looking for various investment options. The stock market is one investment avenue that is popular among most of the people. What makes stock market attractive is the returns that can be made by investing in it. There have been numerous instances where people have made manifold returns with stock investing. Whether you are a long term or short term investor, you always have the question that, is the stock market the right place to put the money? For some people, stock market investment can sound to be a great idea but for some it can be a daunting task. Therefore, before entering into the stock market, you must know the risks and benefits involved. In this article, you will learn about the pros and cons of the stock market.

Pros of Stock Market

 

  • Make Good Money

 

The biggest reason that makes the stock market the most attractive investment option is that you can make good money. Many people enter the market after hearing the stories of small companies going big and generating incredible returns for their shareholders. In the stock market, anything is possible. All you need to do is invest smartly. Yes, there are some risks in the market, but the returns that you can generate here makes it worth taking the risk.

  • Liquid In Nature

No other investment option is as liquid in nature as the stock market. You can purchase or sell the stocks within seconds. It means that you always have easy accessibility to your money. There is no need for you to wait for weeks or months for your money. Instead, just sell the stocks and get your money back.

  • Dividend Income

By investing in stocks, you can get income in the form of dividend. Dividend is basically the profits of the company which it decides to share with its shareholders. Not every company gives dividend to the shareholders, but those which give, deliver annual payments to the investors. You get the dividend income even if the stock has lost its value from the top. Companies that give regular dividends are always good to add if you are making a portfolio for your retirement life.

  • Diversification

The stock market is a great product for those who want to diversify their portfolio. By holding stocks in your portfolio you can cover the losses made from other investment products. Stocks have their own risks too but they can add rapid growth to your portfolio and help you in earning high returns in the long term.

  • Takes Advantage of Booming Economy

When the economy of a country grows, it has a direct effect on corporate earnings. Economic growth creates job, increases income and increases the sale of products. When the revenue of the companies grows, the stock price always increases because of higher profit generation. Therefore, if you want to take advantage of growing economy, stock market is the right place for investment.

  • Beat Inflation

Investing in the stock market is one of the best ways to beat inflation. If we look at history, the stock markets have given higher average annualized returns in comparison to average annualized inflation rate. Thus, you must have long term view in the stock market and keep holding the stocks even when the market dips.

Cons of Stock Market

 

  • Risk

 

Stock market investment is risky in nature. If a company performs poorly, the stock value can fall down. The investors than may have to wait for years to recover from the loss. Therefore, the investors should always carry out in-depth research of the companies before putting money in the stock market.

 

  • Emotional Roller Coaster

 

The stock market will always test your emotions. A market crash can give you stress and anxiety. The market volatility will always tempt you to make decisions that might not be right. Therefore, to survive in the market for long term you must make sure that market volatility does not affect you mentally. 

 

  • Stockholders Get Paid At The Last

 

When the company goes into liquidation, the preferred stockholders and secured creditors have the first right to get the payment. Stockholders get paid only if there is any money left after paying the other parties. However, by making a well-diversified portfolio you can safeguard yourself from this risk.

Conclusion

The above mentioned are the pros and cons of investing in the stock market. Historically, the stock markets have delivered handsome returns to the investors. By investing money in good quality stocks and after carrying out the necessary research, you can protect yourself from most of the risks. If you learn how to manage your risks well in the market, you can take advantage of the stock market by building a secure portfolio and earning money. However, if you need the assistance of an expert or want to make money with share market live trading, you can get in touch with Kotak Securities.

 

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