Historically, the stock market has delivered generous returns to investors over time, but it also goes down, presenting investors with the possibility of both profits and loss, for risk and return.
Stock Investing Pros and Cons
6 Advantages of Stock Investing
Stock investment offers plenty of benefits:
6 Disadvantages of Stock Investing
Here are disadvantages to owning stocks:
Diversify To Lower Investment Risk
While investing in stocks is riskier compared to bonds, there are ways to reduce your investment risk, such as by diversifying. Diversification means investing in different types of assets, across different sectors so that you spread out your risk. If one type of stock or asset goes down in value but other types of investments go up or stay the same, your entire portfolio is not impacted in a big way. Here are some ways you can diversify your stock investments:
The Bottom Line
There are clear benefits and drawbacks of investing in stocks. Historically, stocks have generated generous returns over the long-term but investing in stocks also comes with significant risk. Risks of stock investing can be spread across different stocks, sectors and geographies, in a process called diversification. How much of each type of investment should you have? Financial planners suggest you establish your asset allocation based on your financial goals and where the economy is in the business cycle.
