Bob Brinker's Marketimer

  Tuesday November 21, 2017

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DISADVANTAGES OF COMMON STOCK
Learn even more about this topic with the Encyclopedia of Personal Finance™

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 negatives.




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