Despite the opinion that the stock market is for big investors, it is also a good investment opportunity for the smaller investor. It is a way to increase one’s income, and further invest in different stock or business opportunities. While the institutional investors have the capital and influence in the market, the small investor’s advantage lies in adequate research and wise choices.
Two main advantages favour the small investor: his portfolio, and long-term investment. The limited portfolio benefits the small investor if he carefully chooses to invest in a company that shows the possibility of long-term success, and has a good record of returns in the market. This is an advantage over the institutional investors, because, institutional investors have to diversify their portfolio since buying one stock can lead to dramatic change in the stock price, thus fetching a bad price for the stock. However, a small investor can invest in one good stock without affecting the price in the stock market. The second advantage that favours the small investor is holding on to stock long-term. The small investor should purchase stock and only sell if changes occur that depreciate its value. This is in consideration to the state of the economy. According to Fellows, in the long term, stock market produces the most return (2009). However, for the big investor, it is more profitable to change stock in the short term.
The disadvantages of small investors can be summed up into, capital and influence (Abraham, 2010). The small investor has limited funds for investment, and therefore, he has limited opportunities. He cannot afford to diversify his portfolio like institutional investors, and most of the fees (such as brokerage firms) and account minimums make it hard for a small investor to start up. Having low capital forces small investors to purchase only one favourite stock, and this is high risk because the purchased stock can fail. Therefore, it is always advisable for the small investor to do adequate research on the various stock options before settling on one. Secondly, the small investor should not invest all his money. It is preferable to save some in case the investment fails. To minimise on brokerage fees, broad research on the available firms and offers should help in choosing the cheapest firm, and go further to choose stock with a low minimum. In conclusion, the stock market is for small investors who know how to maximise their advantages and minimise on their disadvantages.
Classmate’s Discussion Board Post’s Reply
Post from Telisha Edge
The stock market is a means to fast liquidity when the need for liquid money arises, and one can offset any weighty losses against capital gains. However, there is the disadvantage of low stock value, and broker fees. For institutional investors with high capital, buying of stock that has depreciated can be a good long-term investment to make the company grow. This is through mergers, which broaden the company’s portfolio of services offered.
Post from Felicia Journey
The size of the small investor is his greatest advantage in the stock market, because of the deep understanding of the customers, and ability to respond quickly to changes in the market. The disadvantages are a product of high risk due to limited portfolio and low capital. Because of the larger institutions’ strength in the stock market, they can control the value of stock, which leaves the smaller investor at a great disadvantage as he is subject to the fluctuating stock value.
References
Abraham, S. (2010). Is The Stock Market Rigged?. Forbes. Web.
Fellows, A. (2009). A Straight Forward Guide to Individual and Family Finances. East Sussex, UK: Straightforward Publishing Ltd.