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Investing In Stocks – Advantages & Disadvantages

Published on November 18, 2009 by Editor in Investments

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:

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.
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.
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.
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:

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

Buying Stocks: Now Is A Good Time to Buy Stocks

Published on November 14, 2009 by Editor in Basic Financial Advice, Investments

The last year has been an extremely turbulent time for money markets across the globe. Investors have seen their investment portfolios dwindle to shadows of their former selves, Investment giants have collapsed, been forgotten and swept under the rug only to be replaced by new investment majors. A lot of clients have lost most of their life’s savings and retirement funds. Clients have also made investment blunders by selling at the bottom of the market only to see the market rise 60% in a matter of months. All these facts makes one question, is there really a point to investing in the market and buying stocks and holding direct equity more so?

Why Owning Stocks Is A Good Idea

So with investments falling through across the board, why should investors consider buying stocks? There are several reasons why it it sensible to buy stocks in the current climate

Beating Inflation: As known to most inflation is the biggest detriment to individual savings. It is what the market calls an erosion of savings. Look at it this way if you store your money as cash in a safe or a vault your money is not working for you. While the face value of your money remains the same, the prices of goods and services around you rise at a steady inflationary rate. Even if you held your money in CDs or a savings account, in reality your money would indeed be growing at a slower rate than the rising prices of goods and services thereby causing you to lose money in reality. On the other hand by buying stocks and holding your funds in stocks would mean that your money would be growing faster than the inflation prevalent in the market place. The long term moving average of stocks show that they have always out performed the inflation bench marks. The most important thing at the moment is getting started and getting into the market and not worrying about what the market seems to be doing or where it is headed.
Stocks The Way To Go: The reason why most experts recommend that buying stocks are the way to go is for these simple reasons. Let us assume that you invest $5,000 for 35 years in a savings account or in a certificate of deposit. Assuming that as last year the inflation rate remains at 3.8%, you would have only made approximately $2,200 in today’s terms, even though the amount in reality would be something close to $8,000 plus, owing to the fact that these instruments on average offer no more than 1.5 – 2% annually. On the other hand a similar if you buy stocks and had invested in stocks, you would have made in the region of $70,000 plus and in today’s terms that would have been close to $21,000 and above owing to the fact that on a conservative estimate basis, stocks offer 8% on a long term moving average basis. Hence you actually stand to lose by placing your money else where.

Even though you might consider that the market is a risky place in light of the current economic downturn, let us allow the figures to speak for themselves. Had you bought stocks and invested in the year 2002 after the tech crash, you would have seen your funds increase by roughly 33 percent in year one, 44% in year and by the fifth year you would be up by as much as 92-95%, there by almost doubling your investment in buying stocks in a matter of 5 years. Even if you suffered a loss with recent global meltdown, bu buying stocks you would still be ahead by about 30 plus percent.

Hence to sum what we have already stated, it might be a good idea to buy stocks and invest in the market especially in this climate when everyone is looking to exit, anticipating a fall. However, as with any investment decision, it is always prudent to consider your own personal circumstance and risk tolerance prior to making any decisions.