Pros and cons of investing in stocks

What is stock investing?

Stock investing is the act of buying a small piece of a publicly traded company. That piece is called a share, and owning it means you have a stake in the business. As the company grows or faces challenges, the value of your investment can change.

There are two main ways investors could benefit from owning stocks. The first is capital appreciation, which happens when a stock’s price increases and you sell it for more than you paid. The second is income through dividends, which are payments some companies distribute to shareholders from their profits. 

Stocks can be bought individually or through pooled investments such as Exchange-Traded Funds (ETFs). An ETF holds a collection of stocks, often tracking a specific index, industry or theme. ETFs can offer broader exposure without needing to pick individual companies.

At a high level, stock investing reflects a trade-off between risk and reward. Historically, stocks have delivered higher long-term returns than assets like cash or government bonds. However, prices can fluctuate significantly in the short term and losses are always possible. Because of this volatility, stock investing is often better suited to longer time horizons. 

Pros of investing in stocks

1. Potential for long-term growth

Over extended periods, broad stock market indexes such as the S&P 500 have historically delivered average annual returns of around 10% before inflation, despite periods of volatility. 

2. Liquidity

Stocks can be bought and sold relatively easily during market hours. This flexibility allows investors to adjust their holdings or access funds without the long timelines required by less liquid assets like property.

3. Accessibility 

Fractional shares enable investors to buy portions of a stock rather than a full share, making it easier to invest in well-known companies with higher share prices. Commission-free trading can also reduce costs, especially for those starting with smaller amounts.

4. Income potential through dividends

Companies that pay dividends distribute part of their profits to shareholders, typically on a quarterly basis. While dividends aren’t guaranteed, they can provide an additional return beyond price appreciation.

5. Diversification opportunity

Stocks support diversification across sectors, industries and company sizes. By combining individual stocks with ETFs, for example, investors aim to reduce the impact of any single investment performing poorly.

Cons of investing in stocks

1. Market volatility 

Stock prices can move sharply in response to economic data, earnings announcements, interest rate changes or global events. 

2. Emotional decision-making

Fear during market downturns or excitement during rallies may cause investors to buy or sell at inopportune times. Emotional investing can sometimes undermine long-term strategies.

3. Risk of losing capital

Unlike insured savings products, stocks don’t offer guaranteed returns. Companies can underperform or fail and broader market declines can reduce portfolio values – sometimes significantly.

4. Tax complexity 

Selling stocks at a profit may trigger capital gains taxes and dividends may be taxable as income. Tax treatment depends on individual circumstances and investors are responsible for understanding and reporting their obligations. Crypto.com doesn’t offer tax advice.

5. Time commitment

Evaluating companies, monitoring portfolios and staying informed about market conditions can be demanding, particularly for those new to investing.

Common ways beginners approach risk management

While risk is unavoidable in stock investing, there are a few approaches that investors use to manage it over time.

1. Clear goals and timelines

Longer time frames have historically allowed more room to absorb market volatility, while shorter horizons can be more sensitive to price swings.

2. Diversification

Diversification is commonly used to reduce reliance on the performance of any single company or sector. Broad exposure – whether across industries, company sizes or investment types – can help smooth outcomes over time. Many portfolios use ETFs to achieve this.

3. Dollar-Cost Averaging

Dollar-Cost Averaging (DCA) refers to investing set amounts at regular intervals rather than all at once. This approach is often discussed as a way to reduce the impact of short-term price fluctuations. It can also introduce more consistency into how investments are added over time.

4. Portfolio monitoring

This is typically viewed as a balance between staying informed and avoiding overreaction. While periodic reviews help track changes and performance, constant monitoring may amplify emotional responses to short-term movements. Many investors focus on longer-term trends instead.

5. Educational support

Ongoing education plays a role in how investors interpret risk and market changes. Learning resources, such as the Crypto.com Stocks Learn Hub, can provide context as markets evolve. Platform tools like alerts and research features are often used to stay informed without constant oversight.

How to invest with Crypto.com Stocks

Crypto.com Stocks is available through the Crypto.com App, offering access to over 12,000 US stocks and ETFs in one place. You can buy full or fractional shares, with commission-free trades that may help reduce costs, particularly for smaller or recurring investments.

1. Download the Crypto.com App and open a Crypto.com Stocks account.
2. Complete the identity verification. This step helps meet regulatory requirements and supports account security.
3. Go to ‘Trade’ and select ‘Stocks’ to browse your favorite US stocks and ETFs.
4. Buy full shares or fractional shares, commission-free.
5. Track your portfolio performance, set price alerts and schedule recurring buys. 

Get started with Crypto.com Stocks

This is informational content sponsored by Crypto.com and should not be considered as investment advice.

Foris Capital US LLC (“FCUL” or referred to herein as “Crypto.com Stocks”) is a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a Member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). For further information about FCUL, please visit FINRA BrokerCheck.
FCUL is a subsidiary of Crypto.com. 

Fractional shares are not available for all equities.

All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. Past performance does not guarantee future results.