What are the disadvantages of investing in stocks?

In this article, we describe the biggest disadvantages of investing in stocks. By preparing well, you can minimize the effects of these cons.

The biggest cons of investing in shares are:

  • You risk losing money when you invest in stocks
  • It takes a lot of time to select the best stocks
  • The transaction fees can be high
  • Investing in stocks can generate negative emotions
  • You lose your investment in case of bankruptcy
  • You compete against professional investors

We briefly discuss each drawback and examine whether the disadvantage is really a problem.

Disadvantage 1: There is always risk involved

You can earn a lot of money by investing in stocks. However, there are no guarantees: when you invest in shares, you can also lose a lot of money, especially during times of declining stock prices.

By applying smart risk management, you can reduce the chance of loss. You can do this, for example, by:

  • Diversifying your investments across different stocks.
  • Investing gradually: this is also called dollar cost averaging.
  • Only investing money that you can afford to lose.

Practice makes perfect, and this also applies to investing. Click here to try investing for free with a demo.

Disadvantage 2: Investing in stocks takes a lot of time

If you want to invest in stocks successfully, you need to conduct a lot of research. Buying stocks at random is not a smart investment strategy. For example, you will need to research whether:

  • The company you want to invest in is financially healthy.
  • The company can keep up with the competition.
  • The sector and region are performing well.
  • The company has a solid plan for the future.

You can use fundamental or technical analysis to investigate whether a stock performs well.

If this seems like too much work but you still want to benefit from the stock market, it may be interesting to invest in ETFs. With an ETF, you can invest in the price trend of an entire stock index at once. Click here to read more about this method of investing in stocks.

Drawback 3: Investing in stocks can be expensive

Many investors discover that investing in stocks can be expensive. This is especially the case when you invest in shares through your own bank. This is a waste; every euro you pay in transaction costs limits the return you can achieve.

The transaction fees you need to pay depend on the boker you trade with. It is advisable to compare the costs of different brokers. Some brokers even allow you to invest in stocks without commissions, which means you can get started with small amounts of money.

Click here to compare the best brokers & start investing.

Disadvantage 4: emotions and the rollercoaster ride

Histoically, stocks have only risen in the long term. However, this does not mean that you only make money with stocks: especially in the short term, you can lose a lot of money.
Both novice and experienced investors sometimes suffer from their emotions. They sell stocks in blind panic, which results in significant losses. Click here to read in more detail how your emotions can affect your investments.

Disadvantage 5: you’re at the worstp osition in case of bankruptcy

When the company goes bankrupt, as a shareholder, you are all the way at the back. For example, bondholders first receive their money. You only receive some money if there are still funds left after all creditors have been paid.
In practice, this means that you will lose all your money when the company in which you own stocks goes bankrupt. Therefore, research how the company performs before investing in stocks.

Disadvantage 6: professional competition

Finally, don’t forget that as a private investor, you are competing against institutional, professional investors. Banks and insurance companies buy stocks for billions of dollars.
Beating the market with speculation is almost impossible as a starting investor. Therefore, focus on the long term to achieve the best results.

Should you invest in stocks?

As you can see, investing in shares has some disadvantages. Before we can draw a conclusion, it is important to discuss the benefits of stocks:

  • Investing in stocks can help you build wealth.
  • Stocks have always performed better than bonds in the past.
  • You can sell stocks at any time.
  • Stocks can protect you against inflation.

Do you weigh the disadvantages more heavily than the advantages? Then you may be better off investing in a different investment product. However, by taking the solutions mentioned into account, the disadvantages of investing in stocks do not have to be a major problem.

Try trading risk free?

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