You must have heard statements like, “If you want to make the most out of investing, invest in stocks.” It is valid to a great extent, but there’s more. Depending on who you ask, there are both upsides and downsides to investing in stocks in India. Overall, investing in the stock market has more advantages than disadvantages if you make informed decisions.
Let’s look at the main pros and cons before determining whether the share market is good or bad:
- You own a stake in the listed company.
When you buy stocks of any company, you own a fraction of the company, no matter how small. This gives you certain control of the business. Once you own a required minimum, you have voting rights which give you the power to contribute to the strategic management of the said company.
- Unmatched liquidity
The liquidity component of stocks is almost unmatched compared to any other instrument! You can make transactions in a matter of seconds. If you urgently need cash, you can just sell your shares and have the money available in your account in 2 working days.
- Governed by a regulatory body
The Securities and Exchange Board of India (SEBI) regulates and governs the stock market and safeguards the interests of shareholders. This greatly helps secure people’s interests in case of any fraudulent activity or company. Thus, addressing people’s most common concern, “Is the stock market safe?”
- You don’t have to be a financial expert.
Anyone can do it! Anyone can open a Demat account and start trading or investing. You don’t have to be a financial analyst. You just need to understand which industries are doing well and which are not and invest accordingly. Be aware of your risk appetite before investing. You can do everything on your own via a discount broker or avail the services of a professional financial advisor via WealthDesk.
- Start with very little money.
Another attractive quality—it’s accessible to everyone! You don’t have to be very rich or have a lot of savings. Start saving whatever you can and invest in the stocks of your choosing after doing a bit of research. You also have the option of investing in index funds and exchange-traded funds (ETFs).
- (Almost) Always stay way ahead of inflation.
An undeniable plus point that goes unnoticed because we somehow ignore the effect of inflation on our daily lives. Currently, the inflation rate in India is around 4.48%. From a long-term point of view, the stock market has always stayed ahead of the inflation rate in almost any given year. Thus, it not only beats the negative effect of inflation but also safeguards your hard-earned money and increases your purchasing power.
The Negatives (If you aren’t careful)
- The stock market is volatile.
A stock market investor has to be cautious and calculative. It is always advised to have a long-term perspective when investing in the stock market as share prices rise and fall multiple times in a day and over a period. Moreover, these are unpredictable by nature and can seem risky in the case of short-term goals. In case of a market crash, it can take years to recover.
- Brokerage can reduce your profit margins.
Brokerage is charged whenever you make a trade (buy or sell shares), affecting overall profitability. So, to bear the fruits of investing in the stock market, it is essential to stay patient, not give into spontaneous emotions, and invest for the long term to maximise your returns.
- It takes time.
Patience is your biggest asset. To build wealth via stocks generally takes years, even decades. Your money might be growing by tens of thousands in a few years, but it can be developing by lakhs annually, on average, over decades. Hence, staying invested is crucial.
- Doing what you don’t know can cost you dearly.
Unlike popular belief, the stock market isn’t a gamble. So treating it like one can lead to more harm than good. Investing erratically without understanding the industry or the market can cost you a lot or even all your money. There are many common investing mistakes people make:
- Choosing not to clear high-interest-rate debt first before starting to invest.
- Investing in areas you don’t understand, such as options or commodities.
- Gambling with high-flying and penny stocks.
- Buying stocks with borrowed money.
- Getting into intraday trading without having an understanding of it.
A simple way to invest smartly is by building an investment portfolio that balances risks against potential returns. This is one of the many objectives of WealthBaskets by WealthDesk. WealthDesk is a platform provider for retail investors to invest in portfolios called WealthBaskets that are curated by SEBI registered professionals.
What is a WealthBasket?
A WealthBasket is a portfolio of equities, or ETFs, that helps you build low-cost, diversified, long-term as well as short-term portfolios. Each WealthBasket by WealthDesk reflects an investment strategy, theme, or idea with underlying stocks, and the ETFs accordingly weighted following a rigorous research process by SEBI registered expert advisors.
The Bottom Line
Is investing in the stock market good or bad?
Investing in stocks has more positives than negatives. The negatives will come into play IF you don’t understand what you’re doing and are making blind or unverified decisions. Whatever you do, make sure you invest with a long-term goal in mind and stay updated with the market.
The benefits of investing in the stock market include the potential to earn dividends from your shares. This is in addition to the potential for earning high returns from the stock market if a particular stock performs well over time. However, keep in mind that the stock market is volatile, so returns aren’t guaranteed, especially over a short-term period. Hence, diversifying your portfolio and investing in quality companies is always advised.
Any time is a good time to invest no matter what’s happening in the market, as long as you plan to stay invested for the long-term. It is advisable to start with small amounts.
As part of your overall investment portfolio, investing in the stock market is one of the smartest and most effective ways to build wealth over a lifetime. You need not be rich from the start as there is no limitation to how much you can invest.
No, they can’t. It is a misconception. Investing in shares is a slow, time-consuming, and consistent way to build wealth long term. But the average returns are much higher as compared to other investment instruments.