What are the benefits of investing

Buying shares - advantages and disadvantages

The money in savings accounts is usually safe.

For this security, however, you always pay with low interest and, in the case of inflation, even through depreciation.

By contrast, stocks have often proven to be extremely profitable in the past.

There are several reasons for taking the risk of buying stocks.

However, stocks are still one of the investments that should be chosen wisely.

Understanding Stocks

A share is a document that confirms to its holder a share in the total assets of a stock corporation (AG).

So the shareholder is the co-owner of a particular company.

In this way, shareholders earn money on the stock exchange if the business situation of the company is good or in expectation of rising prices.

It is important that with regard to stocks, the future is primarily traded on the stock exchange.

This means that forecasts are made for the development of a company and then the share price is determined.

Beginners should therefore inform themselves very carefully before they start trading stocks.

More on this:Trading stocks: beginners need to know that

The benefits of buying stocks

Those who invest in stocks can benefit from many advantages.

The greatest attraction of stocks is undoubtedly the possible price increases and the prospect of dividend payments.

With the dividend, shareholders receive ongoing interest on their investment, even if they do not want to sell the stock.

Due to strong price fluctuations, stocks promise very large profits - in the long term, but also in a short time.

If you take the DAX index as an example, it has quintupled its score in the last 20 years.

Calculated over the year, this means a return of around 20 to 25% - significantly higher than most returns on fixed-income investments.

Another advantage of stocks is their great liquidity. Shareholders can buy and sell shares at any time during trading hours.

The huge selection of different stocks also makes the stock market extremely interesting and diverse.

In addition, shares are generally very flexible to use. On the one hand, the investor can invest in stocks for the long term, but on the other hand they can also use them for short-term speculations.

Since shareholders are co-owners of the respective company, they also have voting rights at the general meeting.

There is therefore the opportunity to have a say in corporate governance issues.

It should be noted, however, that the voice of a small shareholder does not carry much weight in a multimillion dollar company.

The disadvantages of buying stocks

There is always a risk involved in buying stocks.

First of all, one should generally have fun and enjoy a certain thrill in order to trade stocks successfully.

In times of crisis or poor company expectations, there is a risk of high losses. In a real stock market crash, the share price can drop by up to 50% or sometimes more.

In the event of a corporate bankruptcy, there is even a risk of total loss.

It is therefore crucial for investors to trade with the right strategy.

More on this: Equity strategies: better rules for more lasting returns

Unlike overnight money accounts, stocks do not offer fixed returns.

The return is always based on the share price and the dividend. These can always change. It is therefore important to always keep an eye on the courses.

Another disadvantage of buying shares is the tax liability that has been in force since 2009.

As a result of the final withholding tax, all price gains have become fully taxable, which means that the tax advantages of share purchases have been lost.

Conclusion

Buying shares has advantages and disadvantages.

However, those who enjoy risk and thrills are made for stock trading. After all, high profits beckon.

However, you should only buy stocks with money that you don't need in the short term. Otherwise you will get bad surprises very quickly.

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