The stock markets have held a long history of helping investors to grow wealth over time. But we cannot ignore the fact that there have been several large stock market crashes wherein many have lost their money. Hence, stocks can be considered a profitable yet risky investment.
The question is- Is investing your hard-earned money in a stock market worth it? After all, we have heard the stories of investors who have made fortune out of stock market investing. The truth is, to eat the cake of the stock market, you need to understand the strategies and how it works.
Are you a starter in the investment world? Or you are just looking to make the most of your money. Here are things you need to know about stock market investments before taking the plunge.
Should You Invest in Stock Market?
Let’s dig into some key points that will help you take the best decision:
1.It is a smart way to grow your wealth
Investing in the stock market is arguably one of the beneficial ways to grow wealth over time. When you invest in shares, you become a part-owner of the company you invest in. Therefore, you get to enjoy a regular stream of income as the company pays you as dividends from the profits made.
Besides, as the company grows, the value of the stocks grows. This can be sold to earn higher profits in the form of capital gains. . You can also make off some decent income from short-term trading.
2.Investing in stocks comes with substantial risk
Well, no investment comes without risk but the level of risk differs and this can have a huge impact on your investment returns. There have been instances of well-standing companies going bankrupts. While other major economic challenges such as the Covid-19 pandemics can get the stock market crashing down.
When things go wrong or a company fails, an investor might lose the whole investment. This makes the stock market one of the risky investments out there.
3.The stock market is easy to buy and sell
It is very easy to buy shares of any company. There is a plethora of brokerage firms both online and offline including financial planners who are more than willing to offer their services.
Moreover, the selling of shares is breezy. The stock market is highly liquid and there will always be a buyer at the end. An important aspect to consider when you quickly want to turn your shares into money.
4.Returns in the stock market are not fixed
There is no guaranteed rate of investment in the share market like fixed deposits. All stock market no matter the type is volatile and they can experience fluctuation in prices. Many factors come into play when it comes to returns and can cause variations in returns.
Market sentiment, political issues, company size, dividend yields, interest rate risk, are many of the factors influencing the rate of returns.
5.It makes great flexibility for your portfolio
Stock investment is great for a diversified portfolio. We never can be sure of what can happen in the market at any money. That is why having a diversified portfolio will better absorb the shocks during a market downturn. Hence, a well-diversified portfolio should include a mixture of stocks, fixed income, and commodities.
6.Extensive knowledge of the stock market is important
Understanding the stock market is very crucial to making informed decisions. Research of the company is important to determine how profitable they are before buying stocks. The financial statements, the company’s annual report need to be analyzed to determine the true value of the stocks.
Moreover, you need to be armed with the right knowledge and skills of the market. Plus, there are sophisticated trading tools, financial models, and strategies that are required for successful trading. However, this comes with years of knowledge and experience.
7.Hedge against inflation
As inflation lowers the values of fixed income investment and cash savings, many considered the stock market as a good option to hedge inflation. Stocks represent ownership of part of corporate earning that tends to grow higher during inflation. Plus, they do not decline in value or price as much as fixed-income when inflation appears.
To conclude, we believe that the stock market is worth investing in. It sure has its benefits and risks and is one of the greatest ways to build wealth. However, this might not be an easy feat and it can take years of learning to get hold of the stock market basics.
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