Anyone who lived through the 1929 or the 1973-74 Wall Street crashes, Black Wednesday (September 16, 1992), the 2007-08 financial crisis or the 2020 stock market crash is well aware of the disadvantages of stock market investing. Taking significant risks can lead to great benefits, but of course, it can also lead to losing your shirt – plus your pants, skirt, socks, shoes and everything else you own. What is the stock market like today? Is it still worthwhile to invest, or should you explore other avenues?
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As in the past, investing in the stock market today has its pros and cons. It's best to start with the bad news first, as detailed by the writers at Tax Professionals. Everyone hopes to buy low and sell high, but stock prices fall when companies do not perform. It can be a real emotional roller coaster for investors to watch their stock value shrink.
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Many people sell out of fear, though financial advisors recommend keeping your shares and waiting for a price increase later on. Still, this can be extremely difficult for people who are constantly following stock prices. Learning to choose the right kinds of stocks takes time and experience, so you need to do your research or work with a financial advisor.
Even the most experienced advisors lose money in the stock market because it is so volatile. Many financial institutions, apps and financial websites share plenty of free investment advice that can prove beneficial. If you are more of a short-term investor, you may see that your stocks have not done well. You have to be patient with these investments and know that it can take decades to accumulate any real wealth.
Another con of stock market investing is that shareholders get paid last. The company's bills need to be paid first, followed by preferred shareholders and bondholders. This applies to dividends, which are never guaranteed.
If you are concerned or new to investing, you might want to stick with a stock that pays dividends. In addition, consider selling one if its price is slipping down. These are the main disadvantages of share markets in modern times.
The biggest plus of investing in the stock market is not guaranteed but holds investors in awe: making a tremendous amount of money. You don't need to invest a lot to get started, either. You can start with some shares of an index exchange-traded fund (ETF) and slowly increase the size of the investments over time. Another option in today's stock market is to buy fractions of shares, which cost less than whole ones. To do this, you specify how much money you want to put toward stock and buy what you can afford; this is good for first-time investors.
Investing in the stock market can also keep you ahead of inflation while you grow your assets. Looking at the past decades, the rate of inflation has averaged close to 3 percent a year, but at various points, it has been much lower and much higher. At the same time, stocks averaged closer to 10 percent. Therefore, investing in the market can allow your money to grow at a faster rate than inflation.
Another good thing about the stock market is its liquidity. Other kinds of investments (including real estate) do not allow investors to withdraw money quickly when it is needed, and the property needs to be listed and sold, taking weeks, months or much longer. Stocks can be bought and sold every weekday (except holidays), but as with other investments, you will be paying taxes on the money you make or taking deductions for your losses.