The advantages and disadvantages of buying stocks
Owning a stock means you are participating in the growth of a company. If you’re a beginner the Guardian’s guide to investing covers all the basics. However, we all know that businesses are not always going to grow, meaning there’s always an element of risk associated. Companies very rarely promise a return on your investment, quite simply because it’s impossible to predict what the future holds for a company, even if all initial indications of growth are very positive.
Whether or not you get a decent return on your investment depends on if the stock price rises or not. Companies that have high growth and performance levels are usually the ones making the most profit, and high profits should mean a rise in stock prices.
If we were to compare buying stocks with buying bonds, the risk of losing money with stocks is higher, but the amount of money that can be made also increases if your investments succeed. Most serious investors buy both stocks and bonds, so that you can be sure that some of your money is safe whilst potentially raking in money through wise investments. Plenty of people across the word believe that owning stocks is one of the greatest ways to build one’s person wealth to ever have existed, and having a good knowledge of how the system works is crucial for any money-driven, ambitious individual.
However, not all of us can put aside the time to learn the inner workings of stock and shares, whether it’s because of work commitments or wanting to spend your spare time socialising instead of researching investment opportunities. The investment management service Nutmeg invest your stocks and shares ISAs for you, making them ideal for individuals who have an interest in making money from stocks, but who may not want/have time to invest themselves.
Before deciding if you want to become involved in stocks, there are a few more things I believe are worth mentioning. Although stocks are known to produce the highest gains in comparison with other investment methods like bonds, certificates of deposit, etc the values of stocks can change for seemingly no reason whatsoever. This can be frustrating for investors trying to guess a stock’s future movements on how a company is performing.
Being a shareholder in a company makes you a part of it, but it doesn’t give you the same rights as an owner or employee. To use an extreme example, you shouldn’t assume you ever have the right to walk into the business’s office complex and start asking questions and demanding to see company documents. This could be seen as a positive; however, as you’re a part of the company but have to put little to no work in after your investment!
If you are prepared to carry out careful research and work hard then there’s every reason to start investing in stocks. However, by far the most important thing to consider is how much you can afford to lose. If making one failed investment will land you in the red, then under no circumstances are stocks the right idea for you!