2 Benefits and 1 Risk to Investing in the Stock Market
Investing in the stock market can be intimidating at first, but it comes with quite a few advantages. At the same time, there are some risks involved with investing in the stock market, and it is important to consider both the benefits and the risks before investing your money.
To help get you started, we have listed the top two benefits and the top risk of investing in the stock market. We hope that this eases your mind a bit when it comes to stock market investment. Let’s get started.
There are two main benefits to the stock market: it keeps you ahead of inflation, and it is easily accessible. Let’s start with the inflation benefit.
Stocks have an average annualized return of around 10%. This is higher than the average inflation rate. If you start to invest in the stock market from an early age, even if there are price fluctuations during market recessions and expansions, there are good returns available. Generally, the longer a trader keeps investing, the more can be earned through compounding, outweighing the rate of inflation.
Additionally, it is easy to buy from the stock market. You can purchase shares through a financial planner, a broker, or through an online broker. If you set up an account online, you can easily buy and sell stocks within minutes. More so, online stock brokers in the UK, like eToro, allow you to participate in the stock market with commission-free trading.
Obviously, the biggest risk associated with investing in the stock market is losing your investment. Whenever a company does badly, investors tend to sell their shares, causing the stock prices to fall. If you sell at this point, you can lose the initial investment as well.
If you lose money on a stock, you are eligible for an income tax break. Conversely, making money from a stock will require you to pay capital gains taxes or income taxes for dividends. Buying bonds is the way you should go if you want to invest in an asset class less risky than stocks, while offering a decent return.
All in all, investing in the stock market is something you should seriously consider. It comes with some notable benefits and risks, but the benefits often outweigh the risks, especially if you plan to invest in the stock market fir the long term. /strategically invest in small amounts.