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The stock market is one of the primary sources of revenues used by individuals or corporations to run or expand their business entities. Also, the stock market offers a long-term investment opportunity to individuals and business entities; because it provides liquidity that enables investors to quickly trade their securities. As compared to other investment opportunities, although investing in the stock market can be a risky undertaking, the stock market offers a dependable performance of a diversified portfolio of stocks.
As a result of these investing in the stock market has many associated advantages that include: stock market investments have high returns, offers individual a chance to participate in the building of the economy, they offer long term and flexible investment opportunities, has little legal liability, and it is a flexible trading opportunity. On the other hand, investing in the stock market also has several disadvantages, although they are outweighed by its pros.
The common disadvantages of investing in the stock market include stock market investment have no guaranteed returns, have many associated risks and costs, and it is a time-consuming undertaking (Diaz, 2009, p.1). Therefore, although investing in the stock market can be a very risky venture, because of its numerous benefits, it is a worthy means of short or long term saving and investing.
Advantages of Investing In the Stock Market
One primary advantage of stock trading is its associated with superior long-term outcomes. Although it is very hard sometimes to predict the market price trends over a long time, for example, more than one trading quarter, stock market investments have high returns that can be informed of dividends or capital gains, as compared to bond and certificate of deposits. This is made better by the fact that the amount of loss from stock procured with cash is only limited to the aggregate sum of the early investment.
This makes it better as compared to most leverage business dealings, where the nature of losses accruing from such undertakings can exceed the originally invested amounts. A second advantage of investing in the stock market is that, through owning stocks, individuals are guaranteed a direct means of participating in the building of their nation’s economy. This can be very beneficial to an individual and, because of the numerous gains associated with being key investors in a nation’s economy.
The third advantage of this form of investment is that it offers individuals long-term investment opportunities (that are easy to access and exist), more so as concerns saving for retirement. Although it is very hard for one to predict correctly future changes of stock prices, the more the time individuals participate in stock trading, the more the insights they will learn on how the stock market operates and how to conduct their tradia ng to avoid losses. Further, stocks protect the passive stockholders’ liability beyond their reserves in organizations.
On the other hand, because of the liquid nature of most stocks, their trading is easy, more in times of extreme price fluctuations. This offers individuals a chance to trade their stocks, depending on the prevailing market conditions (Royal Scandia Life Assurance Limited, (n.d.), pp. 1-5).
Disadvantages of Investing in the Stock Market
Although stock trading has numerous advantages, proper use of appropriate economic policies can help to mitigate their effects. They include; to start with, it is a very risky adventure, because of the volatility of market prices. Hence, unless individuals make correct predication before trading in their stocks, likelihoods of entities suffering great loses are high, as most factors that cause these fluctuations cannot be control by an investor.
Secondly, although stock markets offer a good retirement investment opportunity, it is not a stable from of investment for old age. Hence, it is important for individuals to transfer their funds to safer solid investment, to avoid frustrations after retirement. The third disadvantage of this form of investment is that, it has many associate costs, right from the initial minimum deposits to transaction levies charged by brokerage firms.
These charges may reduce the revenues earned from an investment hence, to larger extent limiting the amount of earnings from stock trading. Finally, investing in the stock market can be a very time consuming venture, as it requires frequent checking of one’s level of achievement. Further, the process of researching for the most suitable portfolio can needs alt of time, it being the primary determinant of the level of achievement of n individual in the stock market (Central Bank of Bosnia and Herzegovina, 2010, p.2).
In conclusion, although investing in the stock market can be a risky and time-consuming investment venture, it is important for individuals to note that it is one of the best investment opportunities because individuals can easily access and exit the stock market with easiness, regardless of the economic situation of a country.
Central Bank of Bosnia and Herzegovina. (2010). capital markets: advantages and disadvantages of investing in capital markets. Web.
Diaz, S. (2009). The advantages of investing in the stock market. Web.
Royal Scandia Life Assurance Limited. Why stock market investment? Royal Scandia Limited. Web.