Common stocks advantages and disadvantages are numerous. In the past eight years almost anyone who bought into the stock market when it hit bottom in 2008 has more than doubled their investment. Gains in the value of the stocks as well as income from dividends has outperformed almost any other investment.
Some of the advantages and risks associated with stocks include dividend income, growth opportunities, diversity of investments and liquidity. Before you invest in the stock market, many investors believe that you should develop a strategy that matches your objectives and your tolerance of risk. If you cannot stomach the volatility of the stock market, common stocks might not be the right investment vehicle for you.
A typical investment strategy which takes into account common stocks advantages and disadvantages could be as follows:
Blue chip – invest in high quality companies that have been around for many years, pay good dividends on a regular basis and have a future in the industry they are in.
Income – If you need income, dividend paying stocks are the way to go. Some companies have a history of increasing their dividends every year. They do much better than GIC’s and other fixed investment income vehicles.
Dividends – Companies pay a dividend every 3 months to the stock holder. Many pay cash direct to the investors account while others allow re-investment of the dividend into the same stock. This is an excellent way of avoiding any broker charges and growing your investment at the same time.
MER – is the fee charged by mutual fund companies for managing the mutual fund. You pay this fee regardless of whether the mutual fund makes money or not. Investors should decide if they want someone managing the investment for them or not.
Diversity – Never put all of your money into one investment – stock, mutual fund or GIC. Diversify your investments across several stocks in various industries
Risk – the market is not without risk. There have been significant upticks and downticks in the stock market. This is both an advantage and a disadvantage of common stock investing.