The Disadvantages of Stock Investing

While there are many advantages of stock investing, there are also disadvantages. These disadvantages represent risks and it is better to know them so you can plan for them.

Probably every good thing on earth, has its own downsides. As the popular saying goes, ‘nothing good comes easy’ and in investments, this too is true. The same way the most successful people in life are the ones who took the biggest risks, had the biggest failures, and were the most persistent, investing rewards all – but the risks of losing or failing exist.

Just so you can have a full picture the two possible outcomes to your investments, here are some of the disadvantages that come with investing in stock.

Volatility (especially in the short term)

One of the main reasons you are advised to hold your investments for longer periods, is that in the short term, prices are volatile. As you should already know, the market moves in response to the available information.

As such, something that is synonymous to an unconfirmed rumor can lead to a sharp fall in the price of a stock. The reason we have real-time stock market data is because prices rise and fall virtually every second in the market.

If you are in it for the short term, you might have moments of panic when it seems like all your hard-earned money is going down the drain and you may be forced to sell out of fear.

You Are Last On The Food Chain

This could be a good thing or a bad thing. Being last on the food chain might mean that you are the one that enjoys the real share of profit after all other minor disbursements have been made.

However, in cases of winding up, it can leave you with nothing. When a company gets broke and is forced to liquidate, the stockholders are paid last. In other words, they get the crumbs and in extreme cases, they might not even get anything. While this is extreme, it still is a possibility.

It Requires Knowledge And Time

Again, this is only a disadvantage when you consider monitoring your money, a chore. When investing in stocks, you need to properly analyze stocks so you can make the right investment choice.

You also need to follow the market periodically so you can make informed decisions instead of walking blindly. It requires time and effort before you begin as you have to research into every company analyze them to determine how profitable you think it will be.

During, you have to monitor trends and after, you need to know how to make new investments and new entries into the market. It requires your active participation.

Of course, the biggest disadvantage, or risk is that you can lose the entire bulk of your investments. Where you make an incorrect investment decision, pick a poor stock, or the market turns completely out of your favour, then you can lose not just the dividends or profits you would have gotten buy also your initial investments.

It is important to know that this is the same market that has made billionaires out of many people. Think Warren Buffet. You just need to know what the average investor doesn’t know and find ways to curb the effect of possible losses.

Written by Lawretta Egba