Many of investors consider to invest in the stock market as the stock market contributes to the economy aspect, particularly in the Unites States. Instead of investing in the stock market, you need to know the risk of market investing.
Here are the things why many of them invest in the stock market and the risks.
Reason Why You Invest in the Stock Market
Investors who believe that the economy is growing will invest in stocks, as a strong economy helps businesses to improve their profits. It typically occurs along with the market cycle’s growth process.
In other words, it is a bull market, usually lasting from two to five years.
Many of the listed stocks are common stocks. But some investors are buying preferred stocks.
Investing in stock markets is considered the cheapest way to earn returns that over time surpass inflation, and the expected returns outstrip those of other stocks, such as bonds or commodities.
You can make money by selling and holding, in two ways. Many owners want to encourage their shares to increase in value over time, and certain firms even offer the stockholders a dividend payout per year, which offers added interest.
And unlike real estate, buying stocks is easy, and just as easy to sell.
The success of the U.S. stock market is measured by the three major indices: the Dow Jones Industrial Average or DJIA (stock values of the top 30 U.S. companies), the S&P 500 (stocks of 500 U.S. big-cap companies), and the Nasdaq.
Risks of Stock Market Investing
The most significant downside is that if the stock trading drops to zero you can lose all of your investment. When the company goes bankrupt, bondholders shell out stock owners. Stock investment can be an emotional rollercoaster, for that reason.
Instead, if investors think the economy is slowing or stagnant, they may invest in bonds that are a better investment, even if they come with their own risks.
Bonds offer a guaranteed return over the term of the bond. And then, usually perform well through the business cycle’s contraction phase.
When stock market prices fall below 10 per cent, that is a correction of the stock market. In other words, it is as a stock market crisis.
It happens stocks collapse as much or more in a single day. Only a bad crash will spark a recession. The stock market crash history demonstrates this is a frequent occurrence in its stock market participants.
In other words, it is as a bear market when prices fall 20 per cent or more. These last generally 18 months.