Why buy stocks? Advantages and disadvantages of stocks

The Germans unfortunately buy rather less shares compared to other countries and are more a people of the iron savers. Why should one also buy stocks?

Let me tell you: in the long run, equities yield significantly higher returns (which is the main advantage of equities). Of course stocks also have disadvantages. Therefore, here are the pros and cons of stocks at a glance:

6 benefits of stocks

BENEFIT 1 – Profits from rising stocks: Shares and other securities can generate high profits through price appreciation

ADVANTAGE 2 – In the long term, equities offer significantly more returns than savings accounts: the DAX development of recent decades, for example, serves as proof. This alone has increased 24 times in the last 40 years alone (as of January 2018). Here is the proof in the chart. That’s a return of + 2,300% or an average of 8.27% per year! And that although there were several crises during this period: most recently the Internet bubble around the turn of the millennium and the real estate and financial crisis in 2007/2008.

BENEFIT 3 – Dividend Payout: Many corporations (AGs) pay an annual dividend yield to shareholders. Dividends are therefore an additional source of income in addition to the potential income from price increases (dividends are also paid out if a share has made a total loss in the past year).

ADVANTAGE 4 – Stock trading is flexible: most stocks can usually be bought and sold at any time during stock market trading hours (which allows you to invest short term or long term, depending on the type of asset)

ADVANTAGE 5 – Volatility of the stock market: It is fun for most investors to follow the evolution of the stocks bought (unless they fall in the long run, then this unpleasant tension is rather a disadvantage ;))

ADVANTAGE 6 – Incredible choices: Thousands of stocks across the world are traded across the globe (the various indices make it easier for investors to rank the many stocks by size and risk)

4 disadvantages of stocks

DISADVANTAGE 1 – Losses due to falling shares: Especially in bad news or in times of crisis there is an increased risk of loss. In the worst case, you lose 100% if you have put all the money in a bad stock, for example, is facing bankruptcy. However, a high risk of loss can be reduced significantly by buying several different stocks (best from different sectors). So-called stops also protect against high losses.

DISADVANTAGE 2 – Various other dangers lurk on the stock market: These can be more or less easily avoided (read my article risk stocks)

DISADVANTAGE 3 – No fixed return on equities: due to price fluctuations, there is any safe return on equities, such as overnight money and savings accounts (because stocks can fall as well)

DISADVANTAGE 4 – Withholding tax since 2009: since then, capital gains have been taxable (around 25% for every private investor). Before the withholding tax was introduced, profits were tax-exempt if you held the shares for more than a year. But this tax comes in almost every other investment also, so no real disadvantage in my eyes.

If you are new to stock market there some online stock trading courses India can help you to understand the stock trading in better way.

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