Question

Discuss the main challenges and opportunities for investors and other stakeholders in Stock market.
Essay of about 2000 words

Can you give the main points.

Answer 1

Solution =

Challenges for investors & other stakeholders in stock market are as follows -

1) Economic risk:

One of the most obvious risks of investing is that the economy can go bad at any given moment. Following the market bust in 2000 and the terrorist attacks on September 11, 2001, the economy settled into a sour spell, and a combination of factors saw the market indexes lose significant percentages. It took years to return to levels close to pre-September 11 marks, only to have the bottom fall out again in the 2008 financial crisis. For younger investors, the best strategy is often to hunker down and ride out these downturns. Foreign stocks can be a bright spot when the domestic market is in the dumps.

2) Lack of knowledge and ability:

In any field you need knowledge and experience. If you were to enter medicine, you would need to know certain things. If you were to enter the field of communications, programming or biology, you would need knowledge and application for those respective fields. To perform in any field, first you need to become a student of that field. The stock market is no different. Training in the stock market though, is more difficult to find out about, especially for a Trader/Investor/Money Management.

3) Capital:

Quite simply, You need money! You need money to play; to invest, to trade. Other careers are not like this. You need to be able to save money like it’s a religion. Most people work a regular job, then they save over the years and invest it. Some people save for a lifetime. Some inherit. Whether you save money, raise money or are able to inherit money, it has to happen. Money is the life blood of any Trader/Investor. You need it to start and when you are down or after a big hit in the market, you may need more to recoup your losses. Finally, some traders get wiped out, be it from a bad, over-leveraged trade or just bad luck. You will need capital (money) to start again.

4) Bad Timing :

Though the least common of these five challenges, some new investors simply go into the market right before a financial downfall. This has caused investors to lose money before making any! However, this risk can easily be mitigated by dollar cost averaging, a strategy where you invest into the market bit by bit and over a long period to mitigate larger fluctuations in the value in your portfolio.

5) Over-Diversification :

This challenge is one that is almost always self-inflicted. Many new investors feel as though they need to invest a bit in everything to shield themselves from risk. However, over-diversification can significantly stunt your portfolio’s growth. It is often best to pick 2-3 options to invest the majority of your portfolio in.

Opportunities for investors & other stakeholders in stock market are as follows -

1) Takes advantage of a growing economy:

As the economy grows, so do corporate earnings. That's because economic growth creates jobs, which creates income, which creates sales. The fatter the paycheck, the greater the boost to consumer demand, which drives more revenues into companies' cash registers. ​​It helps to understand the phases of the business cycle—expansion, peak, contraction, and trough.

2) Best way to stay ahead of inflation:

Historically, stocks have averaged an annualized return of 10%. 1 That's better than the average annualized inflation rate of 2.9%.2 It does mean you must have a longer time horizon. That way, you can buy and hold even if the value temporarily drops.

3) Make money in two ways:

Most investors intend to buy low and then sell high. They invest in fast-growing companies that appreciate in value. That's attractive to both day traders and buy-and-hold investors. The first group hopes to take advantage of short-term trends, while the latter expect to see the company's earnings and stock price grow over time. They both believe their stock-picking skills allow them to outperform the market. Other investors prefer a regular stream of cash. They purchase stocks of companies that pay dividends. Those companies grow at a moderate rate.

4) Divisibility and Financial Planning :

Shares are liquid assets. You can buy or sell them owing to your financial planning. Stocks also offer the feature of divisibility, which gives you an opportunity to sell a certain part of your shares when you need some urgent cash. While you sell a certain part of your shares, the remaining shares still remain invested for long-term gains.

5) Regular & Long-Term Gains :

The stock market allows you to invest in shares to earn regular income in the form of dividends. Companies pay dividends to their shareholders every year out of the profits. You can get these dividends in the form of cash, securities, and more share units. You can also invest in the stock market to create a diverse investment portfolio for long-term gains. As the company grows, the worth of your shares also grows, which can help you make huge profits in the long run.