The stock market is one of the primary sources of revenues used by individuals or corporations to run or expand their business entities. Also, the stock market offers a long-term investment opportunity to individuals and business entities because it provides liquidity that enables investors to quickly trade their securities. As compared to other investment opportunities, although investing in the stock market can be a risky undertaking, the stock market offers a dependable performance of a diversified portfolio of stocks.
As a result of these investing in the stock market has many associated advantages that include: stock market investments have high returns, offers individual a chance to participate in the building of the economy, they offer long term and flexible investment opportunities, has little legal liability, and it is a flexible trading opportunity. On the other hand, investing in the stock market also has several disadvantages, although they are outweighed by its pros. The common disadvantages of investing in the stock market include stock market investment have no guaranteed returns, have many associated risks and costs, and it is a time-consuming undertakig. Therefore, although investing in the stock market can be a very risky venture, because of its numerous benefits, it is a worthy means of short or long term saving and investing.
Investment Media in India:-
In India, many types of investment media or channels are available for making investments. A sound investment program can be constructed if the investor familiarizes himself with the various alternative investments available. Investment media are of several kinds. Some are simple and direct, others present complex problems of analysis and investigations. Some are familiar, others are relatively new and unidentified. Some investments are appropriate for one type of investor and another may be suitable to another person.
The ultimate objective of the investor is to derive a variety of investments that meet this preference for risk and expected return. The investor will select the portfolio which will maximize the utility. Securities present a wide range of risk-free instruments to highly speculative shares and debentures. From this broad spectrum, the investor will have to select those securities that maximize his utility. The investor, in other words, has a optimization problem. He has to choose the security which will maximize his expected returns subject to certain considerations. The investment decision is of optimizing returns but risk taking capacity varies from investor to investor. It is not only the construction of a portfolio that will promise the highest expected return but it is the satisfaction of the need of the investor. For instance, one investor may face a situation when he requires extreme liquidity.
He may also require safety of securities. Therefore, he will have to choose a security with low returns. Another investor would not mind high risk because he does not have financial problems but he would like a high return. Such an investor can put his savings in growth shares as he is willing to accept risk. Another important consideration is the temperament and psychology of the investor.
Advantages of Investing in Stock Market:-
- One primary advantage of stock trading is its associated with superior long-term outcomes. Although it is very hard sometimes to predict the market price trends over a long time for example, more than one trading quarter, stock market investments have high returns that can be informed of dividends or capital gains, as compared to bond and certificate of deposits.
- The second advantage of investing in the stock market is that, through owning stocks, individuals are guaranteed a direct means of participating in the building of their nation’s economy.
- The third advantage of this form of investment is that it offers individuals long-term investment opportunities (that are easy to access and exist), more so as concerns saving for retirement.
- Because of the liquid nature of most stocks, their trading is easy, more in times of extreme price fluctuations. This offers individuals a chance to trade their stocks, depending on the prevailing market conditions.
Disadvatages of Investing in Stock Market:-
- It is a very risky adventure, because of the volatility of market prices. Hence, unless individuals make correct predication before trading in their stocks, likelihoods of entities suffering great loses are high, as most factors that cause these fluctuations cannot be control by an investor.
- Although stock markets offer a good retirement investment opportunity, it is not a stable from of investment for old age. Hence, it is important for individuals to transfer their funds to safer solid investment, to avoid frustrations after retirement.
- It has many associate costs, right from the initial minimum deposits to transaction levies charged by brokerage firms.
- Investing in the stock market can be a very time consuming venture, as it requires frequent checking of one’s level of achievement.
In conclusion, although investing in the stock market can be a risky and time-consuming investment venture, it is important for individuals to note that it is one of the best investment opportunities because individuals can easily access and exit the stock market with easiness, regardless of the economic situation of a country.