Should I Buy Stocks? Pros and Cons of Buying and Investing in Shares of Stocks

You can become a millionaire by winning the lottery, getting a big inheritance, or robbing a bank, but most people have to do it the slow way. They get richer day by day by increasing their revenue, decreasing their expenses, and investing the difference wisely.

No matter how they earned their wealth, one of the many options millionaires and all other investors have to invest their wealth is to buy stock certificates. This hub describes the advantages and disadvantages of investing in shares of stocks, and shows you how to buy stocks.


Adding stock certificate to your investment portfolio is a great way to diversify your wealth.
Adding stock certificate to your investment portfolio is a great way to diversify your wealth. | Source

Advantages of Buying Stocks

There are many advantages to buying stocks:

  • When you buy shares of stock, you become a part-owner of a company. There is satisfaction in being an owner of a company that produces something important or has great values. When the company does well, you can be proud to own a piece of it.
  • Buying stock made me feel like a grown-up in the world of finance. When I had stock from two different companies (the companies I worked for), I felt pride in having a portfolio, even when I only had one share of stock from one of the companies.
  • If you buy shares of stock directly and not through a mutual fund, you generally do not have to pay any fees beyond the purchase and sale of the stock.
  • Stock certificates do not have a maturity date, so you can hold on to them for a long time without having to worry about finding new investments, unless the company stops doing as you expect.
  • Most importantly, stocks are one of the few investments that can increase in value above the rate of inflation. Most other investments, like savings accounts and bonds, generally cannot keep up with the rate of inflation.

Disadvantages of Buying Stocks

Stock prices are very volatile. They go up and down based on what the company does, but they also go up and down based on what the economy does, what some other company does, what the government does, and just about everything else. Seeing the price go up and down can be scary, especially since it is your hard-earned money, and you are thinking about your future and your retirement.

It is possible to lose your original investment when you buy stocks. If you made a bad investment decision, and the company goes belly up, you will lose a substantial portion, if not all, of your investment. Your principal is not guaranteed.

The biggest problem with owning stock, in my opinion, is that your brain and your heart want to do two different things at the same time. You read the mantra, "Buy low, sell high," and understand it. Of course, you want to buy when prices are low and sell when prices are high. It makes perfect sense to your brain. Why would you want to do it any other way?

The little problem to this mantra is that you don't really know when prices are low or high. They might continue to rise or they might reverse direction. You might get greedy and think you can to wait a little bit longer to get a better deal.

And then there is your heart. Your heart doesn't want to buy stocks when there is a stock market crash, it wants to sell everything and hide the money in mattress. It doesn't want to sell when the stock is doing so well, it wants to buy more. Other people's hearts are also feeling the same way, so everybody else is selling when the stock market crashes, and it makes sense for you to do the same.

My stomach starts getting upset when my brain and my heart are fighting. You have to have a strong stomach to buy stocks.

Grow your money by taking educated and calculated risks while investing in stocks.
Grow your money by taking educated and calculated risks while investing in stocks. | Source

Millionaire Tips on Investing in Stocks

I personally think everyone should own some shares of stock. She should buy stocks to a specific company that she chose herself. She can feel pride in being a part owner of the company. She can learn how the value of the stock fluctuates with each quarterly report or company announcement. She can also see how the value fluctuates with what the market is doing, and can really understand how the stock market works. She can also learn with this small amount of stock whether she has the stomach to handle a bigger investment in the stock market.

Instead of investing in one company, and losing your life savings if the company goes belly up, it is best to diversify your investments and invest in a number of companies. That way, if one of them goes belly up, you still have money invested in other companies that might be doing well.

Do You Invest in Stocks?

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Diversify your Stock Investments

I order to get diversify, and make sure you don't put all your eggs in one basket, you will need to buy a lot of stocks. It is usually too much work for a person to try to keep up with that many companies, and most people do not have enough money to properly diversify in a hundred or so different companies. People who want to own stock generally find that buying a mutual fund is a better way to diversify their holdings and keep the workload manageable. For the price of a management fee, they can let an experienced and knowledgeable investment manager keep track of the holdings, and buy and sell stocks when the market conditions are proper to do so, and hopefully become richer day by day.

Invest for the Long Term

It is also important to look at investing in stocks as a long term proposition. Although the stock market is very volatile in the short term, over time, it tends to provide higher returns than other investments. If you can plan ahead and be patient, you can wait until the stock market is climbing when you sell your investment. In this way, you can make sure that you always Buy Low and Sell High.


© 2011-2012 Millionaire Tips

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Comments: Should I Buy Stocks? Pros and Cons of Investing in Stocks 14 comments

jayprakashgupta profile image

jayprakashgupta 3 weeks ago from Mumbai

Trading is for those who want to make money quikly ( at the same time , risk involved is very high), investing is for those who are ready to play the wait game( long term investors) here again the risk involved depends upon how the stocks has performed over the years.


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Millionaire Tips 4 years ago from USA Author

Thank you for your comment and insight Kommadant - reinvesting dividends is a quick and painless way to let your retirement portfolio grow.


Kommadant 4 years ago

I am fully invested in stocks at the moment. I think that dividend paying stocks that reinvests the dividends back into the company is the best way to go for those that are saving for retirement.


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Millionaire Tips 4 years ago from USA Author

Thanks thelyricwriter. Stocks are a long term investment, and you do need to be able to withstand the rise and fall of stock prices, but in the past they have given a return that was higher than the inflation rate.


thelyricwriter profile image

thelyricwriter 4 years ago from West Virginia

Great article! I have always wanted to learn about stocks and how to invest them. I know it seems like a game of "chance", but if you do some hard research and with a little luck, you could make some great money it would appear. People do it all the time, so why not? I agree, spreading it out seems the way to go. Voted up and useful.


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Millionaire Tips 4 years ago from USA Author

Thanks Brett. It is good advice to never invest what you can't afford to lose.


Brett.Tesol profile image

Brett.Tesol 4 years ago from Somewhere in Asia

Some very good and honest advice. I liked the dividends when I owned stocks, as it was fun to see what the 'bonus' would be, on top of their increase in price (more luck than judgement). However, I never invest what I can't afford to lose ;-).

Thanks for SHARING your tips.


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Millionaire Tips 4 years ago from USA Author

Thank you for reading, commenting, voting and sharing molometer. Investing in stocks can be a good strategy for long term growth.


molometer profile image

molometer 4 years ago

Another first class hub on the pitfalls and advantages of the stock market. Long term looks good. Voted up and SHARING


claptona profile image

claptona 5 years ago from Earth

It's not that I am uncomfortable, as I have invested in stocks, gold and silver for years.

It's the fact that it is a rigged market.

Anyone who invests in a rigged market, and thinks they can outsmart the insiders - be my guest.

That fact still remains, that Wall Street is rigged, and if investors want to support the Ponzi scheme that is called Wall Street, let them knock themselves out.

Just don't try and convey to people that this is a market that is similar to what it was in the 60's and 70's, because it is not.

CNBC, MSNMoney - all lie about what is going on in the financial world.

Just like anything else in the world, you invest in today's market, you are supporting corruption, banks robbery of citizens assets and those that are taking away your freedoms.

Have a great weekend.

Cheers


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Millionaire Tips 5 years ago from USA Author

John, I agree that if you are not comfortable, you should not be investing in the stock market.


claptona profile image

claptona 5 years ago from Earth

Hi Millionaire,

Was not suggesting HFT. It has caused problems with many stocks, and the way they trade is really small investor unfriendly.

The market has never before been this rigged against the small investor.

Banks and insurance companies got a major break in accounting rules after the 208 debacle - now NO bank or insurance company can be analyzed because they are allowed (legally) to lie about their balance sheets.

This is not even the same type of market that was trading in 2007 - it is much more dangerous. MF Global is a great example - they just went bankrupt and used clients monies (illegally) to try to stop the blood. It did not work, and now clients cannot access their funds.

This could happen at any brokerage house or bank. The government is aware of these frauds and illegal activities, but does little to stop the abuse.

Not much different than what occurred in the mortgage industry which the government did nothing to stop the abuse and fraud there.

To suggest to someone that a buy and hold strategy is prudent, when every one else is trading for short term gains, is not wise.

Buffet and others did it in a time of growth, relatively calm markets and a more transparent balance sheet by companies.

In fact, if you look at Buffets performance since 2007, his "buy and hold' has cost him billions.

This is not a time when inexperienced people should be in the market.

As a matter of fact, over the last 12 months there has been a mass redemption of mutual funds flowing out of the market - which is not a good sign.

If it was me, I would be out on the side lines until

1) The problems Europe are resolved

2) The US starts getting serious about taking care of our large deficit.

Until both are resolved with confidence, the marker right now is a crap shoot. If you like craps and cards, the market is right up your alley.

If you want some sort of safety, cash is the trend and friend.

Cheers,

JOhn D. WIlson


Millionaire Tips profile image

Millionaire Tips 5 years ago from USA Author

Thanks for your comment John. Investing in stocks can certainly be scary, and has been since the first company went public. There is always a chance that the company is lying or hiding facts. And there are so many things that affect a stock price that have nothing to do with the company itself.

I do not recommend high frequency trading, I prefer the buy and hold strategy, which costs less in fees, and lets you be a part of a company's growth.


claptona profile image

claptona 5 years ago from Earth

Hi Millionaire Tips,

I'll tell ya, when it comes to stocks and bonds, the market is rigged against the small investor.

HFT (High frequency trading) is all about short term pennies, and wide fluctuations in bids and asks.

Banks present balance sheets that are total lies.

Insurance companies to not disclose what's on their balance sheets.

Any one investing right now in this rigged market is similar to a blind man walking through a mine field.

It used to be a fair market in may ways, but not since the government started giving all the big banks free money to play with.

JMHO, but it ain't what it used to be in stocks, bonds or anything else.

Cheers,

John D. Wilson

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