When you’re thinking of the word investment, almost always, the first picture that may pop up in your mind would be the stock market. A share or an equity refers to part ownership of a company, and a company’s profits or losses depends on how well it has been doing in the market.
While companies obviously aim for satisfactory financial results most of the time, there are crevices to fall into now and then. As an investor, you need to be wary of this and diversify your portfolio to protect it.
Here are the reasons you might want to reconsider putting your eggs in that one basket we call the share market.
1. Subject to higher risk
Stock prices are always fluctuating. You can’t precisely predict your profit when you’re indulging in stock market investments. Changing market conditions tend to affect the stock market more than most other sectors. Its potentially high returns come with a catch – that is its risk.
Decisions of higher stakes
Not everyone has the temperament that the share market demands. Hasty or impulsive decisions will negatively affect you the most in the stock market. For example, people could make bad decisions when a stock price boosts momentarily, to never go up again. When they’d decide to sell them clear, the prices would have probably sunk to an all-time low. One bad decision encouraged by temporary circumstances could lead to a permanent loss.
No involvement in the core structure
The most glaring downside of the stock market is; you are not wholly involved in the decision-making process of the business that influences the market outcome. The company could make bad choices while your funds take the hit for no fault of your own.
Going with the hype can cost you
One of the major pitfalls for investors in the stock market comes from following the herd mentality. Being influenced by word of mouth, instead of technical research often leads to huge loss. Stock investments are a matter of disciplined approach and extensive investigations; you don’t just opt for trial and error when it’s about big money.
It requires prolonged periods of research
An investment decision in the stock market can demand a significant amount of work and time. You need to diversify your portfolio, read up on the trends, and the potential factors that trigger surges or troughs. Skipping the process could lead to losses, and most of us do not want to spend that much of time.
These are the key reasons people find it difficult to make a fortune out of share market investment. Now that we’re apprised about the cons let’s evaluate the other good options.
• Mutual Funds
One of the things wise investors look for is asset diversification. Mutual Funds are the best way to provide you with an instantly diverse portfolio with lesser costs. They also reduce transaction costs and individual commission charges. With a professional expert as your manager, this type of investment provides you easy access to get in and out whenever you choose to. Plus, it doesn’t require the kind of time a direct investment in the share market demands. Best mutual funds lists can easily be looked at and further analyzed.
Cash flow from real estate yields passive income, which is more like a stable assurance. Then there are tax benefits too. Plus, real estate is often considered the king of the “hedge against inflation”. Here you are the sole controller of your decisions. Even if you don’t want to be a landlord, you can take the plunge into real estate investment. REITs (Real Estate Investment Trusts) offers a suitable solution.
There’s a reason for the term Gold Standard – the metal’s price is the least volatile. Gold has been globally accepted for ages, a trend that’s not changing anytime soon, even though it seems to be on the downtrend. Even if you don’t want to deal with physical gold, you could invest in Gold ETFs (Exchange Traded Funds) and FoFs (Funds of Funds). Some gold funds also give long-term capital gains tax benefits.
Bonds are widely acclaimed for their convenience in buying and selling. You can have your pick between high risk-high returns, or a lower return with more security. Either way, their volatility is significantly lower than those of stocks. Bonds are also liquid; a large quantity of buying or selling doesn’t always imply alarming changes in the price. Bond-holders also have a relatively better legal protection; i.e. if a company goes bankrupt, a recovery amount will always come back.
Analyse these alternative options based on what works out to be more convenient and a smart choice for you. As with any other investment, we’d recommend you go through a detailed scrutiny of the asset in which you finally decide to invest. In the battlefield of market risks, let well-informed investment decisions be your trusted weapon.