Investing in Stocks and there Advantages and Disadvantages

There are a number of different types of investment available to today’s investor. One of these is buying into a company by purchasing stocks or shares.

When you buy stocks in a company you are essentially buying part of the company. You will receive a certain number of shares, depending on how many you have bought.  The amount of profit or loss a company make will then affect the worth of your shares. The share value can go up or down, and you can sell at any time. So if you sell when shares are higher than when you bought them you will make a profit, while if they are lower you will make a loss.

There are many reasons why someone will make investments. Some would just like to make a little extra money by buying a few shares in a company they hope will grow, or continue to grow. Others though, look to make a significant amount and spread their investment around many investment opportunities, worth large amounts. This is obviously more risky. Some people invest as part of their retirement plans.

There are investors who really look at their investment as more of a project. This may be the case if they are investing in a company they are genuinely interested in or believe has a future. They may purchase a number of shares to try and have a say in the business.

That is one of the advantages or owning stock in a company. You have a part to play in decision making by having a vote on important issues. Normally when certain decisions are being made each person who owns shares will have a vote, with each share meaning a vote. Therefore someone who owns fifteen shares will have fifteen votes. A high percentage of shares, and therefore votes, will mean you can have a significant say in the direction the business takes. If you own 80% of a company’s shares then you have more say than everyone else put together. Having this amount of shares means you can really be part of the business.

Another major advantage in stock investment is that it typically out-performs other types of investment.

There is a risk with stocks, though, as shares can go down as well as up. Returns are never guaranteed. There are times when the value of a companies shares fall dramatically in a short space of time. It is therefore important to get out at the right time. If you envisage a fall it is best to sell while you can for a good price. The best time to sell your shares is when they are at their peak. If there has recently been a significant rise in the share price, you then have to decide whether to sell and make a good profit, or risk keeping hold of them and hoping the rise continues. This could mean massive returns, but could also mean they fall and your shares loose all of their value.

Investing in stocks is often all about timing. Buying shares just before they have a significant rise can bring an excellent return, but buying them just before a dramatic fall will have the opposite effect. The challenge is knowing the right time to buy and the right time to sell.

Andrew Marshall ©

Investment Trusts