Direct stocks have always been an extremely attractive investment option for numerous reasons. However, with numerous market down turns through history, individuals have always questioned the so-called great investment vessel that is direct stocks. We have listed below some of the advantages and disadvantages of investing in direct stocks.

Invest In Stocks – Advantages

Some of the advantages of investing in stocks are:

1. Capital Appreciation: One major reason for holding direct shares is “Capital Growth / Appreciation”. Over the years shares have know to exhibit great capital growth with the increase in share prices. In addition to this corporations and companies and also sometimes issue their share holders with what is known as a “Bonus Issue” In this case, instead of paying individuals dividends, the company issues them with additional shares at no extra cost. This leads to increase in share holding of investors. Another way in which shares show capital appreciation is by a “rights issue”. In this case the company gives their existing share holders the right to purchase shares in accordance with their existing holdings. This offer is made to existing share holder directly and they do not need to go through a broker thus saving on transaction and brokerage costs.
2. Dividends: This is a major plus for direct shares. A regular income stream though dividends for shareholders is what makes investing in shares very attractive. Shareholders also have the option to chose whether they want their dividends paid directly to them or whether they want to re-invest those dividends into the buying of additional stocks.
3. Transaction Ease: Owing to the fact that there is an extremely developed secondary market for shares, it is very easy to buy and sell shares. Individuals do not have to wait to for a company to issue new shares. They cam readily buy or sell these shares in various financial markets. In addition it is very easy to liquidate shares and convert them back into cash should you wish to do so.
4. Diversification: Shares are a great way to diversify your existing portfolio. For instance if you are a growth investor you would like to have as much as 33 percent of your portfolio invested in direct shares. Shares provide the steady growth element and diversification aspect to a portfolio.

Disadvantages On Investment In Stocks

While the advantages of investing in shares outweigh the disadvantages, there are certain disadvantages none-the-less. For starters, the prices of shares can b extremely volatile. For one, if the management of a company makes one bad business decision, it could mean that the value of the stock would fall. In some horrible situations this could lead to a company becoming bankrupt and the shares of that company becoming worthless. In addition to this stocks are susceptible to various market and geo-political risks which could also lead to the devaluing of a company’s shares.

While markets risks and company risks are some of the major disadvantages of investing in stocks another disadvantage is transaction cots associated with shares. Brokerage and transactions costs could sometimes be so high that they actually eat into any profits made by you on the buying or selling of shares.

These are some of the major advantages and disadvantages on investing in stocks.

References:

1. Advantages and Disadvantages of Investing in Stocks – OTC NYSE stock tips