The Benefits and Risks of Stocks

The benefits of trading in the stock market are plenty, but so are the risks. Unifunds believes in providing all valid information to investors so that they know exactly what they are getting into when trading stocks.

Stocks offer investors a high potential for growth, also known as capital appreciation, over the long haul. Investors willing to stick with stocks over long periods of time have generally been rewarded with strong and positive returns.

However, stock prices move down as well as up. There is no guarantee that the company whose stock you hold will grow and perform, and so it is possible to lose the money you have invested.

If a company goes bankrupt, common stockholders are the last in line to share in the proceeds. The company’s bondholders will be paid first followed by holders of the preferred stock. If you are a common stockholder, you will get whatever is left over, which may be nothing at all.

Even when companies are not in danger of failing, their stock price may fluctuate. For example, large company stocks, as a group, lose money about once every three years on average. If you have to sell shares on a day when the stock price is below the price you paid for the shares, you will lose money on the sale.

Market fluctuations can be unsettling to some investors. A stock’s price can be affected by factors inside the company, such as a faulty product, or by events outside the company and has no control over, such as political situations or market events.

Stocks are usually one part of an investor’s holdings. If you are young and saving for a long-term goal such as retirement, you may want to hold more stocks than bonds. Investors nearing or in retirement may want to hold more bonds than stocks.

The risks of stock holdings can be offset in part by investing in a number of different stocks. Investing in other kinds of assets that are not stocks, such as bonds, is another way to offset some of the risks of owning stocks.