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  • Investing: the pros and cons – THIS IS WHAT YOU NEED TO KNOW!
  • Investing: the pros and cons – THIS IS WHAT YOU NEED TO KNOW!

Investing: the pros and cons – THIS IS WHAT YOU NEED TO KNOW!

The pros and cons of investing

Investing is a hot topic for many. The time when the stock market was the territory of old (wealthy) men is long gone. Starters and students in particular are also interested in investing. However, it is important that you understand that investing does not only have advantages. There are also plenty of disadvantages. Before you start investing, it is relevant to have a clear picture of the good and bad things about this activity. Below you can read everything about the advantages and disadvantages of investing today.

Benefits of investing

Many people invest. They would not do this completely voluntarily if there were no advantages to it. So it may be an open door to state that investing has (many) advantages. But what are these?

More return than saving

When you look at the performance of the stock market, you can easily conclude that the annual returns can be very high compared to saving. Are you more into concrete figures? In the past 100 years, the Dow Jones has turned over approximately 17 times. So if you had invested money approximately 100 years ago, it would now be worth 17 times more. Can you present similar figures when it comes to saving versus investing ? The answer is unfortunately negative. Unfortunately, because saving is a lot safer than investing. After all, investing involves risks.

Compound interest

Within the investment world, there is a very powerful effect called compound interest . This is also called the interest-on-interest effect. Albert Einstein was already familiar with this and even called the mathematical phenomenon the eighth wonder of the world. The principle basically means that you periodically invest a certain amount. The larger the amount, the more return you will achieve, even if the percentage of return remains the same. For example, if you invest a certain amount every month, your assets will grow faster and faster. The growth is therefore not linear, but exponential.

Freedom through liquidity

The stock market is very liquid. This means that you can quickly open and close positions. Are things not going well? Then you can take the step to sell all your positions from one moment to the next. You can then quickly move your money from the stock market to your bank balance without any problems.  Liquidity  is nice, because you are not tied to anything. With some other investments, which fall outside the sphere of shares, you cannot always say that there is a lot of liquidity. It is important to realize that not every investment product is liquid by definition. Investment products from far-away countries that are not very popular, for example, will be a lot less liquid than shares in Apple or Amazon.

Passive income

Depending on  your investment strategy, investing can be done quite passively. For example, many investors start with periodic investing by fully automating the purchase process of shares. You then have little to worry about your portfolio and you will generate passive income. In general, the riskier your investment, the more you will have to do it. More risky investments include investments in leveraged products, such as CFDs. With leveraged products, the price can change incredibly quickly, which means you will have to actively monitor your positions.

Disadvantages of investing

It doesn’t matter where you are: there is always someone who is bragging about his or her results on the stock market. Unfortunately, these are often distorted stories and it is sometimes forgotten that investing also has many disadvantages. A number of these will be discussed below.

Risk of losing your money

This is perhaps the biggest disadvantage of investing. Because you are speculating and ‘betting’ your money on it, there is always a chance that you will lose your money. After all, not every position will immediately shoot into the plus. Every investor makes a loss, the trick is to limit the losses and let the profits run. However, this is easier said than done. The lesson? Never forget that every investment involves a risk; even investments that are presented as safe and guaranteed.

Uncertain return

You are never guaranteed a return. You could counter by saying that the past shows that you almost always make a return with (for example passive) investments, but the past is just the past. A well-known slogan in the world of investing is: ‘past results do not guarantee future results’. This uncertainty can be experienced as annoying. That is completely normal. As social beings, people are simply looking for stability.

Fighting your emotions

Emotions are a (very) bad advisor on the stock market. This concerns both negative and positive emotions. Negative emotions can cause you to close a position too quickly when the market is performing less well, while positive emotions can cause you to recklessly open new positions when the market is performing better. You need to separate your rational thinking from your emotions. However, this is easier said than done. It is important to only invest with money that you can afford to lose. This way, no emotional dependency arises and you will be able to let go of your emotions more quickly.

Easy to take a lot of risks

You may be aware that the more risk you take, the more money you can potentially earn with a position. However, this is a dangerous fact. Many investors start out cautiously, but take more and more risk when they experience that making a profit on the stock market is quite realistic. However, this is where things go wrong. It is important to protect yourself from taking too much risk, otherwise investing can be very expensive; especially if you are not an expert.

Time consuming

It was previously stated that investing does not have to take up much time when you use a fairly  passive strategy  . In practice, however, it is difficult not to check your investment portfolio every hour. This takes time. In addition, it is wise to only take positions when you are aware of the latest developments. You need to do research on certain companies and situations, so that you can make the most substantiated speculation possible. This also takes time. Now, it helps that investing is quite interesting and that your time is not wasted in that sense. It is, however, conceivable that not everyone can spare that time. Investing often has to be combined with work or study.

To invest or not to invest: a personal decision

At the end of the day, you are the one who decides whether or not to start investing. Don’t be guided too much by so-called success stories. Investing shouldn’t feel like an obligation. When you decide to start, it’s wise to read up on it first. Which investment products do you want to invest in? What is your goal? With regard to the latter, drawing up a solid investment plan can be very useful.

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