Today investment is so popular as everyone wants to increase their assets.But finding the right choice of investment is quite difficult . Short term investment or long term , and where to invest all this buzz every investors head. Investment on Stocks and Shares is always the popular choice.
Investment on Stocks and Shares
But all have a confusion where they have to invest – Is it on stock or on shares. In order to answer this you should the pros and cons of stocks and shares.
Read Also : Short term Investment Plans – Pros & Cons
What is Stock?
You might have heard the term stock not only in financial sector but in many fields where purchasing is involved. In financial sector, Stock is nothing but a general term which is used to describe the ownership in a company or corporation. It is issued by means of certificates which are called ‘Stock Certificates’. To put it in simple words, stock is a collection of shares.
Stocks can be either Preferred or Common. If someone is holding a common stock in a company, they can attend the board meetings and participate in the voting for decisions taken on various issues. On the other hand, if someone is holding a preferred stock, they can’t vote. But Preferred stock holders are eligible for receiving dividends from the company.
What is Share?
We are hearing daily about the share market in the news section in TV channels. Share is nothing but the smallest unit of a stock and it is specific to the company. For eg. “I bought N shares of C Company”. Here N indicates the number of shares bought and C is the name of the company. Unlike stock, share can be measured in numbers. If a person has bought more number of shares of a particular company, then he/she becomes the shareholder of the company. Generally companies will release only certain portion of their shares to public.
Here you have seen stocks vs shares . Now to know more in detail you should know the pros and cons involved in both investment to take a wise decision. Investment decisions is based on the risk involved and the preference of risk. So you have to decide your investment choice by evaluating the pros and cons.
By just knowing what a stock is and what a share is you cannot take any major decision on Investment on Stocks and Shares. So know further to increase your knowledge on investments.
A .1 ) Stock – Pros and Cons
- Dividends: If someone buys a preferred stock, they will get dividends from the company which can be used for reinvesting again.
- Passive Income: Any income from the stocks is passive as you don’t have to put any effort for getting money.
- No Minimum Guarantee : As the stock market is fluctuating, there is no minimum guarantee for profit. You cannot predict the interest amount as compared in other financial sectors like banks.
So here you are understanding investments and stocks . This will give you key idea on stock but to take a final decision of investment you should know the pros and cons involved in shares as well.
A .2)Share – Pros and Cons
- Passive Income: Share trading is a good source of passive income as you are getting money without putting any effort.
- Qualification: You don’t need any great qualification for investing in shares but a basic knowledge about shares are enough to start with.
- Travel: You don’t have to travel or do any physical work for investing in shares. It is very flexible and you can work at your own timings by relaxing and sitting at home.
- Less Investment: As shares are available in various ranges of prices, you can buy shares with less value and you don’t have to spend more money which is especially helpful for beginners.
- Share Buying : Buying wrong shares may result in heavy loss which will affect you physically as well as mentally.
- Quarterly Results: When a company announces its quarterly results, you can see a drastic change in the price of the share. If the results are bad, then your share price will go down.
So here you are having 50 % knowledge about Investment on Stocks and Shares. Moving to know further on stocks and share will help you to decide better on investment .
Top 5 Factors to Consider When Selecting a Stock
- Always choose stocks that offers dividends as it is more beneficial for your future investment.
- Find the market cap for the stock you are buying. Mid cap stocks are usually better than other stocks as they provide best return on investment stocks .
- Find out whether the price you are paying for the stock is really worth. Sometimes we may spend more money for the items than their actual price.
- Find the enterprise value of the company from which you are going to buy the stock. It will help to find the true value of the company.
- If you want to become a long term investor for a company stock, you should gather all information about the company like products/services offered, top level management, future projects, profit/loss balance sheet etc.
Factors to Consider When Selecting a share
- Before buying the share of any company, add the company to your watch list for a week or so and observe its rates daily. There are many free portfolio trackers available online. You can subscribe for one and start analyzing. Also gather information about the company’s performance and its growth.
- Divide you share investment equally into shares that grow quickly and constant growth shares. Oil company shares are quick growth shares as the oil prices are changing often. Shares of Banks provide a constant growth as there is no sudden change in their policies.
You should analyse the risk to take an investment choice and it differs from one person to another .So you should know this before buying stocks and shares.
Investment on Stocks and Shares should be analysed by knowing the risk involved in it . Some of you may be risk lovers and some o you will be risk averse. So which gives you the lesser standard deviation you can go for that when you think about increasing your asset.
Risks in Stocks
- Losing money – Loss of money is the biggest risk in stock trading as there is no minimum return guaranteed as the stock market is fluctuating.
- Credit Rating – If the credit rating of a company goes low, it will affect the price of the stock because the company is getting its financing or loans based on it. A low credit rating means the company is not able to pay its debts in time which indicates a poor performance of the company.
- Media – If a company is making a news to the media often even if it is a rumor, it will affect the price of the stock badly.
Risk in Shares
- Fluctuation: The biggest risk in share is instability as the price of the share is not constant and changes daily. On the positive side, you will get profit in short time if the price of your share increases. But if falls drastically, you will suffer a heavy loss if you hold more number of shares of that particular company.
- Health factors: You may have to monitor the price of a share daily if you are investing huge amount of money. You cannot sell the shares if the prices has dropped and have to wait till it goes high. This may affect your sleep in the night as you will be thinking what will happen tomorrow.
- Choosing Right shares: If you are beginner in share trading and doing it without the help of any financial advisor, it will be difficult for you to choose the right shares as you don’t have much knowledge.
- External factors: There are many external factors which decide the price of a share without your involvement like change of government, change of directors of the company etc. Suddenly the company may go bankrupt and you will get zero money as return, in such scenarios.
Investing in shares and stocks are not free from risks. But if they are analyzed and invested correctly, you can yield high returns.So you can now decide about Investment on Stocks and Shares according to your choice.