DISADVANTAGES OF COMMON STOCK
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No doubt, the biggest risk of owning common stock is
the danger that the stock will lose value—although the level of that risk
varies greatly according to the soundness, history, and successful
growth of the company. Yet there always remains a chance that you
will suffer a loss if a company you invest in performs poorly and
pays no dividends while the price of its stock plummets. Risk,
of course, is part of the price you pay for the prospect of
increased profits over safer investments.
And, unlike a nice, safe CD in a commercial bank,
your investment in common stock is not insured. Being able to
deduct your loss on your income tax return is small solace for a
significant drop in your net worth.
You will need to spend some time managing your
investments—even if all you do is review them with your
broker two or three times a year. Add to that the cost of time and
the expenses of filing, tax preparation, and maybe a computer and
software to help you organize everything—or, perhaps, a safe
deposit box to store your securities.
Despite these concerns, many people invest in common
stocks, finding that the positives greatly outweigh the