Should I invest in stocks? is a question that every person should ask themselves before beginning an investment journey.
Advantages of investing in the stock market:
- Wealth creation
- Make use of your expertise
- Diversify into multiple businesses
- Diversification from other assets
Let us look at each of these one by one:
Wealth creation and beating inflation:
“If you had invested Rs 1 lakh in the Sensex in 1984, it would have become Rs 1 crore in 30 years.”
Source: Economic Times
While this quote from the economic times is not completely accurate, it is a good indicator that wealth can be created using the stock markets. We need to choose the right stocks/companies.
The figure above is much higher than inflation, infact it is enough to create wealth.
Using your Expertise:
Some of you have studied for years, work in a field where some of the competitors are listed on the stock exchanges. You canutilize your expertise in the field to buy companies which you think are the leaders in the field and are expected to grow year-on-year. Make note you are not allowed to trade on insider information.
Diversify into multiple businesses:
Investing in the stock market is about owning a part of a business, it might not be a significant portion of any company but it isownership. If you see yourself as owning and understanding car manufacturing but can’t start a car selling company, why not research the listed companies and decide which one would be viable and profitable going forward. Use your intelligence and back it with your money.
In the case of most other investment, such as: property, gold, fixed deposits etc, there is a barrier to quickly sellingand getting money. This is the reverse in stock markets, as long as we stay away from penny stocks, we can call our broker, go online to our broker account and sell or buy shares/stocks in a matter of minutes during market hours. Making our money more accessible without a fixed term or leaving the comfort of our home/office.
Diversification from other assets:
Every asset has a place in investing, you should always try to put money into a bunch of different assets.
Stocks are more risky than fixed deposits, gold, property but the potential return is also much higher. So should you only invest in stocks, probably not. It is better to diversify and include stocks in your overall portfolio.
Money should always work for us, not the other way around.
Disadvantages of investing in the stock market:
- Stocks can be risky
- Time requirement
- Emotionally taxing
Stocks are risky:
A company might be doing great today, but adverse business conditions or bad management can lead to a collapse of thecompany, this will lead to the companies share price dropping and your investment can go to 0. Keeping this in mind always invest amount that you can risk losing.
Before investing into a company, you need to research the company whether it’d be a google search or looking into how their product sells. It will take some time. Once the stock is purchased, you should keep a look at the company for changes, whether you re-check every quarter or year is an individual choice, but it will take away a little of your time.
The stock price changes during market hours, the changes can be big or small, positive or negative. It can feel reallygood to have a profit and equally bad when there is a loss. Some investors prefer to look at their stock on a week-to-week or month-to-month basis because of this.
Decide to invest in the markets? Read about how to invest in the stock market, click here
All information here is for educational/research purposes only, we do not recommend trading.