The following is a guest post by Karl from WiseStockBuyer, a blog that teaches you how to how to buy stocks and grow your nest egg.
Let's start with the positives.
As you will undoubtedly be aware, the markets have been very volatile lately. There are two ways to look at this, you can be fearful or you can take advantage of the opportunities that arise.
Personally, I love volatility, when the market is in "panic mode", it moves on peoples emotions rather than logical economic fundamentals. This usually creates some fantastic bargains.
Earn Income From Dividends
There are many relatively low-risk stocks at present that offer fantastic dividends yields, many well in excess of 3%. This is alone is much higher than treasuries and money market funds.
Lots of FREE Help and Advice
If you are new to trading stock market shares, there is a lot of free useful advice available online such as blogs like WiseStockBuyer. Or you can use investment brokers like Betterment to simplify the investing process and still get great returns.
History Shows Stocks Beat Cash
If we look back through history, the stock market has shown it always beats cash in the long term and more importantly it always beats inflation.
Long Term Growth Potential
For me at least, one of the biggest attractions of the stock market is the long term growth potential. The power of compounding your returns and your dividends can create considerable wealth over the long term.
By using reliable stock charting software, a long term investment can be much easier to plan, thus making the rate of return much higher. If you were aiming for a relatively modest 8% per year from your stock investments, this would turn $50,000 into $233,047 in 20 years.
Motley Fool Stock Advisor stocks can also diversify your portfolio, which is a very good thing.
You Can Decide On Your Risk Tolerance
With stock investing you can select your risk tolerance. If you want to keep risk low, you can invest in established companies with excellent track records such as Walmart (WMT) and Exxon Mobil (XOM). If on the other hand you prefer to take on more risk, with the goal of higher returns you can consider investing in riskier growth companies such as Facebook(FB) and Google (GOOG).
Lack Of Alternatives At Present
With the yields on 10 year notes making record lows at the moment, treasuries are not very attractive. Most of the other negligible risk assets are also yielding exceptionally low returns. In real terms, with inflation factored in, these are losing value.
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- PE Ratio Explained
- Ways to Use Arbitrage in the Stock Market
- The 80-20 Rule For Larger Returns
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- The Intelligent Investor Review
Now Onto The Negatives
The problems in the eurozone seem to have been dragging on for what feels like forever. There is a big question mark hanging over these issues. Some of the current unknowns are, Will Greece leave the Euro? Will the Euro even survive? These uncertainties are causing investors to be fearful and avoid investing in stocks.
Risk Of Another Banking Crisis
There is of course the risk of another banking crisis and credit crunch similar to the one we saw in 2008-09. If this was to occur there is a big chance of another global recession and a big crash in the market.
This said, stock markets have had corrections and crashes since they began, they are nothing new. If there isn't a banking crisis, there will be some other reason causing the market to crash. The market has always recovered from these crashes and whilst unsettling, they are a part of investing.
It Will Never Be Risk Free
Investing in the stock market will never be risk free. You will no doubt have heard it before.."the value of your investment can go down as well as up". This is very true. Make no mistake, stock trading is a business and must be treated as such. Business involves risk, but if you are prudent and do your homework, you have a much better chance of coming out on top.
I have laid out what I feel are the most common pros and cons to investing in the markets right now, but only you can make the decision if this path is suitable for you.
What are your thoughts on investing in the stock market these days? Is there a particular problem holding you back from investing in stocks right now?