DISADVANTAGES OF INVESTING IN STOCKS
Even if the stock market claims to be the most popular market among financial markets, it’s also one of the riskiest, meaning you can be very confident about your investments. The risks are important to consider and you must then have a really excellent risk management strategy.
The stock market can be a good friend but most of the time it’s that friend that loves mischief and surprises. Nonetheless, once you are aware of the disadvantages of investing in stocks, you get a better chance of having the market at your side.
The following are the top disadvantages that you will definitely have to face once you decide to embark on an investing journey in the stock market.
You might lose all of your investments
If the company performs well and sees its revenues grow spectacularly, you’ve hit the jackpot. You’ll be getting high rewards and great profits. But that’s not always going to happen. The chances that the company will perform well is as possible as the chances that it will perform poorly.
And if the company doesn’t really showed good performance, you will have to sell its stocks, just like what other investors will do. This will cause the stock price to spiral down. And when you sell the stock, you have just lost your initial investment. And if you can’t stomach that, you can just invest in bonds.
You can get an income tax break if you so happened to lose money in the stock market, but you’ll have to pay some capital gains tax if you get lucky and make money.
Common stockholders are paid last if the company goes out of business
There are two types of stock: the common stocks and the preferred stocks. These two have some distinct qualities that differentiates them from each other. However, when people talk about stocks or buying stocks, they usually refer to common stocks.
And common stocks give you a lot of benefits. However, one big downside of owning a common stock is that if the company unfortunately goes bankrupt, you will be last to get paid.
The company will first pay debts and compensate those so-called preferred stockholders. And being a preferred stockholder isn’t easy.
You have to dedicate a lot of time
When you invest in the stock market, you don’t just jump on the very first stock you see and buy it and wait until its price and value appreciates. That’s just not how it works.
Before you buy a stock, you have to perform different kinds of analysis—mostly technical and fundamental analysis. You also have to learn to read financial statements, balance sheets, press releases, and between the lines (when the company holds conference calls to investors, etc).
This means that even before you buy that stock and start to gain some profits, you’ll already be spending a lot of time and energy to know if the company will really be profitable and worth your money. And many investors do not have any adequate supply of time and energy.
