The beginner's guide to trading shares
The investment markets are bigger than ever these days, as millions of people around the world decide to join them and try out trading and investing. This is an easy desire to understand. After all, we have all heard stories of people who invested in the right thing at the right time and became rich by doing it.
Naturally, you want to be among them. If not for popularity's sake, then simply for financial security, ensuring yours and your family's future, or simply because you are sick of your day job, and you wish to learn how to live off of investing and trading.
These are all perfectly legitimate reasons to turn to investing, but! Before you do so, you need to figure out some things. The first of them is whether you have the discipline to be an investor or a trader.
You will also need some money to get you started. And lastly, you need to decide on what to invest in, as well as what strategy to use. So with that said let's look into whether investing in the stock market is really worth it?
Most people will start with stocks, and here is why
Most people who wish to start investing will go for stocks, as they somehow feel the most familiar and the easiest thing to invest in, and that's not far from the truth. The truth is that pretty much everything is easy to invest in these days, so it really doesn't matter what you go for, from the technical standpoint.
But, stocks are still considered one of the best routes for an investor to take. You get to invest in your favorite companies, and some stocks will almost certainly bring gains unless something major happens to disrupt the market.
Not to mention that a lot of them pay dividends, so you even get to earn some passive income over the years.
However, before you jump on the chance to invest in stocks, it is also worth noting that there are plenty of stories regarding investment failures. People who would go all-in on stocks that are guaranteed to secure gains, only to lose their money.
This is the other side of the coin that most people fail to consider, as they are carried off into the investment world led by optimism and the desire to live off of their investments, rather than work at a 9 to 5 job for their entire lives.
With that in mind, we wanted to check out some good sides of investing in stocks, as well as some bad sides, and see if investing in the stock market is actually worth it, in the end.
Negatives of investing in the stock market
Let's start with the negatives, as these are the things that you should definitely be aware of before you start investing your hard-earned money.
1) It's risky
Sure, the stock market can be profitable under the right conditions. However, the risk is still there, no matter which company you invest in. There are plenty of examples of strong firms suddenly going bankrupt, or some incident turning them from the best investment opportunity to a company that everyone abandoned overnight.
The firm that you thought of as a great investment might end up in a controversy, which would severely damage its reputation. It doesn't even have to be the company itself — it might be that its executives did something shady that will affect the entire company.
You might also invest in the stock of a failing firm, thinking that it is simply undervalued. Then, the price would keep dropping, and you would simply suffer losses due to that.
Then, of course, there is a possibility that the market will crash, as we saw earlier this year, due to the COVID-19 pandemic. It might even happen that geopolitical issues could damage the firm's stock, so there is quite a lot that could damage your investment very unexpectedly.
2) It takes a lot of time to see profits
Another negative of the stock market is that it requires patience. If you expect to invest into a firm's stock and be a millionaire in a month, you will be very disappointed. In order to see major gains, you would have to wait years, or maybe even decades for the price to skyrocket.
Massive corporations of today, like Google, Apple, and alike, were only small, unnoticeable firms several decades ago. However, that was the right time to invest in them. If you were to buy their stocks today, you would have to pay massive amounts for a single stock, and there is no guarantee that they will continue to rise.
More to the point, even if you were to find a future giant while it is still tiny today, you would have to wait for a long time to see noticeable gains. Better make sure that you are willing to do so and that you won't need that money in the foreseeable future.
3) You need a lot of financial knowledge
Successful investing is based on one thing — knowledge. You need to know a lot about the financial world, companies, investment strategies, historical price performance, financial tools, best news sources, best brokers, and much, much more, to be able to make the right call.
Sure, it is easy to go through the process of investing. You just create a brokerage account, deposit some money, and buy stocks. But the key here is making the right move, and in order to be certain what the right move is, you will have to do a lot of homework.
The kind of knowledge and experience that you will need often takes years to collect, so better be ready for a long learning curve, too.
4) The returns are never fixed
Simply put, there is no way of knowing how much you will earn. There are just too many factors to ever be able to calculate your potential earnings properly, most of which are in constant flux, always changing based on various other things, such as the news, the market sentiment, the company's success at marketing, their own strategies, roadmaps, and countless other things.
If you wish to have a fixed income, you should consider things like Fixed Deposits, Government Bonds, and alike. The stock market is simply too volatile and uncertain for that.
Positives of investing in stocks
After all of that, you might be wondering why would anyone invest in stocks? Well, there are plenty of benefits that are more than capable of matching the negatives, and even exceeding them.
After all, the stock market is huge, and there are professional investors dealing with it, so it can't be all bad. Here are some of the reasons why investing in stocks is a good thing.
1) A secondary source of income
We did say that stock investments take time in order to make major amounts of money, and you will have to pay taxes on your gains. However, that still means that you have some gains, to begin with.
As for the fact that it takes time, that is only true if you are after thousands upon thousands of dollars. You can make quite a decent profit through short-term trading. Maybe not day trading (although there are people who do it), but you can trade on a weekly, monthly, or yearly basis, and still make some decent money off of it.
You can even keep your day job, and get some extra cash off of stocks. Every little bit helps, right? So, just because you need years or even decades to get rich — and there is no guarantee that you will — is no reason why you shouldn't invest a bit when you have some extra cash, and somewhat increase that amount over the next couple of months.
2) Stocks tend to be more consistent than other investment options
Another thing that we noted is that stock investments are risky, and that you can always lose your investment overnight, if some major event impacts the market. And, while that is true, stocks are typically safer to invest in than most other assets.
Investing in forex, for example, can lead to much greater losses, as forex tends to go up and down quickly. Cryptocurrencies like Bitcoin can skyrocket or crash by thousands of dollars in a matter of hours. Stocks usually move slower, so you have more time to react.
Besides, history shows that stocks typically tend to make a strong comeback after market crashes. Not only that, but they do it better than any other financial asset or investment option, including savings, bonds, and even gold, at least in the long-term.
3) A hedge against inflation
Inflation can be quite a nasty way to lose your fortune stored in fiat currencies. Through no fault of your own, the value of your money would decrease, and you can go from being quite well-off to having nothing.
Stocks may not be the best asset to be treated as the store of value, but they can be used in such a way. For example, if your country suffers from inflation, but you have invested in the stock of some massive foreign company, your money would be relatively safe — at least when compared to what would have happened to it if you simply kept banknotes.
4) You have the time, and it's not that hard
Previously, we stressed the importance of the knowledge that you need for proper stock investments, and that is still true. However, we also noted that investments can take a long time to pay off, so you aren't really pressed for time.
If you can dedicate a few hours per week, or even per month, to learning about the stock market, strategies, and alike — you can become quite well-educated in a year or two.
It is a process, but it does hold value, and it is something that you can do in your spare time. You don't have to dedicate a month to become the next Warren Buffett — you can take your time with it and do it when you can.
As you learn and experiment, you will gather practical and theoretical knowledge alike. You will get into the world of investments, and things will start to become clearer and clearer, until one day, when you will realize that you simply know instinctively what you need to do.
5) You can save for retirement
Once again, we return to the fact that stock investment is the most profitable when you do it over the years, or even decades. That means that investing in stocks throughout your life can lead to accumulating quite a bit of money by the time you retire.
Investing a few thousands of dollars per year, but doing it properly, can create a small fortune. If you are lucky, you can even make a large fortune by the time you join the ranks of the elderly.
Then, you can simply sell them, and live your later years in comfort and financial security, instead of having to worry about how to survive the month.
So, basically, the sooner you start, the better. Now imagine if you started investing in your twenties, and then picking up that money — which hopefully grew over time — in your sixties. Not a bad deal, right?
6) Invest in stocks to learn
Learning about stock investments has fundamental benefits, as well. You will learn a lot about the stock market, about companies, what makes them work, what makes them succeed, fail, and more.
You will learn how products come to market, how the economy impacts their performance, and how their performance can impact thousands of people.
This might not necessarily make you a financial expert to whom people would come to for advice, but it can help you out in other ways, such as recognizing when the economy is in trouble, and when it is booming. When to invest, and when to cash out, how to preserve the value of your money, and much more.
As we have seen this year, a global pandemic can spread throughout the world in a matter of weeks, and crash the global economy in a matter of days. While most people who couldn't care less about the economy were left confused, without knowing which way to turn or what is going on or why, those who do have some level of understanding probably saw it coming, and were able to invest in things that are more resillient, thus preserving their fortune.
In the end, what can we conclude from all that was said above? Is stock investing worth it?
We believe that it is. It is not easy, and it certainly won't make you rich quick, but it does have its benefits. It can serve as an extra income, it can let you secure your financial future, preserve the value of your money, and educate you about the ways of the business and financial world.
It does require patience, some money to get started, and a lot of research. However, if you start early, you should have an abundance of those, so use them in the best possible way, and make life just a little bit easier by ensuring that you have some money tucked away in the form of a strong, powerful companies' shares.