Risk: You could lose your entire investment. If a company does poorly, investors will sell, sending the stock price plummeting. When you sell, you will lose your initial investment. If you can't afford to lose your initial investment, then you should buy bonds.7 You get an income tax break if you lose money on your stock loss. You also have to pay capital gains taxes if you make money.8
Stockholders paid last: Preferred stockholders and bondholders/creditors get paid first if a company goes broke.9 But this happens only if a company goes bankrupt. A well-diversified portfolio should keep you safe if any one company goes under.
Time: If buying stocks on your own, you must research each company to determine how profitable you think it will be before you buy its stock. You must learn how to read financial statements and annual reports and follow your company's developments in the news. You also have to monitor the stock market itself, as even the best company's price will fall in a market correction, a market crash, or bear market.
Emotional roller coaster: Stock prices rise and fall second-by-second. Individuals tend to buy high, out of greed, and sell low, out of fear. The best thing to do is not constantly look at the price fluctuations of stocks, just be sure to check in on a regular basis.
Professional competition: Institutional investors and professional traders have more time and knowledge to invest. They also have sophisticated trading tools, financial models, and computer systems at their disposal. Find out how to gain an advantage as an individual investor.
No comments:
Post a Comment