Advantages and Precautions for Investing In the Stock Market

Profits Unlimited

One of the first advantages for someone who is contemplating the idea of investing in the stock market is unlimited profits. Anyone can gain from choosing to purchase the right stock at the right time. The amazing advantage of stock shares is that stocks sometimes split two for one. A stock split means for every share of stock you own you receive a free one when a stock splits. Coca-Cola, for example, has had nine splits in its history and there was one three-for-one divided in 1986. If a person purchased 100 shares at $40 when it first went public, he would have close to 75,000 shares of Coca-cola today considering all the splits it has had. His original investment of $4,000 would equal four million dollars today. That person would never have had to touch his investment.

Big Losses

The flipside of great profits in the stock market is great losses. A loss is the result of the way a stock changes as things like market news or world political events happen. News is considered positive or negative. In the end, what this means for an investor is to exercise precaution. By using precaution before investing, the investor will safeguard his investment and will be aware of the biggest stock losers today. The precaution comes with real consequences. The stock market is measured by the amounts of risk taken in the investment. A person who purchases a very volatile investment is considered to take substantial risks. A person investing in the bond market and debt securities are taking a chance, but one that will happen over a year to a decade before his bonds become fully mature.

The risk an investor can make is a small value at great risk or a great value at a small risk. For example, a person can purchase $100 on penny stocks worth 1.2 cents a share and have 8300 shares of stock, or they can invest $80k in Berkshire Hathaway A and only receive .20 of a share. If the market collapses on the penny stock, the person will risk the loss of his original investment. If the market takes a dive and plummets, then the investor who has $80K in Berkshire Hathaway A shares could risk losing his entire investment.

Liquidity of Investment

A person who invests in the stock market can move his money around as often as they like. Day traders often purchase and sell a stock or several stocks as many hundreds of time a day. A day trader is someone who rides the tiny crests of the ebb and flow of a stock’s purchase and selling price throughout the day. Every sell or purchase may gain them between .35 cents to 3.00 a share per day. Again, the day trader sells his shares 10-20 times a day. Overall, a day trader can possibly make $10-30K/day. A successful day trader uses proven strategies to invest.

Taxes on Profits

The disadvantage of investing in the stock market is the taxes they have to pay yearly on gains they receive. Taxes on investments can be excessive for a successful stock investor. An investor who owns successful stock like Amazon® or Berkshire Hathaway A shares can owe the IRS $100K a year in taxes. Taxes cannot be avoided unless you are a large corporation who has what is called an offshore bank account. An offshore bank account is short for putting your investment portfolio in a secluded tax haven where the US Government cannot touch it. Large corporations pay millions of dollars to sophisticated tax lawyers who use the law to protect their large clients who hire them.

Is it Worth the Risk

The bottom line for most average investors is to do your research before investing. Know what you are choosing to do when investing and know you are taking a risk in whatever stock you spend. The good news is that stocks are the reflection of companies run by people. Excellent and honest people run profitable businesses that turn a good profit for its shareholders. Learn as much as you can about the history of the company and find out what professional investors are saying about a company before you invest. Many investors try to learn from successful luminary examples. Investing can be a profession or pastime for investors. Being careful in what you spend is a critical and essential step in professional investing. The FTC requires investment companies to warn investors of the possibility of a loss of their investment.