Expectations vs reality for stocks

Investing in stocks can provide many potential benefits; however, the risks can be just as significant. In Singapore, trading in stocks has grown significantly over recent years, with an increasing number of investors looking to reap the rewards of this type of investment. Potential investors need to understand the expectations and reality of investing in stocks to prepare them for both positive and negative outcomes.

Expectations of stocks trading

Beginner stock traders may have several expectations regarding stocks trading in Singapore, some of which may not be realistic. They should research these expectations before trading to ensure they make well-informed decisions.

Quick returns

Many novice traders expect to make quick returns when investing in stocks. While it is possible to realise short-term gains, the stock market is not a get-rich-quick scheme, and long-term investments are usually more reliable. In addition, trading in stocks incurs fees and commissions, meaning quick returns may not be possible.

Guaranteed growth

Another common expectation is that stock investments will guarantee a return. Unfortunately, this is not the case, as the stock market is subject to positive and negative trends. Investors should manage risk carefully when investing in stocks to minimise potential losses.

High dividends

Many investors expect high dividend payments from their stock investments, but this may only sometimes be true. Companies with high financial stability generally pay out dividends; therefore, these stocks may be more suitable for traders looking for steady dividend income than those investing solely for capital gains.

Easy entry

Some new traders may expect trading in stocks to be easy since the Singapore stock market is relatively accessible. However, there are many variables to consider when investing in stocks, such as understanding different sectors and their underlying business models. Additionally, stock markets can be volatile, meaning traders should always have a plan for both successful and unsuccessful trades.

High liquidity

Another expectation of stock traders is that stocks provide high levels of liquidity, but this is only sometimes true. Some stocks are more liquid than others; if an investor needs to quickly sell their shares, they may need help finding buyers at the desired price point.

The reality of stocks trading

The reality of investing in stocks can differ vastly from expectations, so it’s essential to research thoroughly before trading. The realities of stock trading far outweigh the expectations and provide a more accurate picture of the potential risks and rewards.

Volatile prices

The stock market is often highly volatile, meaning prices can quickly change due to external factors such as news or current events. This volatility can be both positive and negative; while it provides the potential for significant returns, it also carries a high degree of risk.

Low liquidity

Some stocks may have low levels of liquidity in Singapore, meaning traders may have difficulty selling their shares at their desired price point. As such, stock traders should always be aware of the current state of the market before investing, so they are prepared for any eventuality.

Long-term investments

The stock market is not a get-rich-quick scheme, and investors should be prepared to make long-term investments when trading stocks. It may mean waiting several years before achieving returns, so patience is essential when investing in stocks.

Risk management

Managing risk is critical when trading in stocks; even if an investor has done their research, there is no guarantee of success, as the stock market can shift quickly due to economic factors and other variables. Carefully managing risk is essential if a trader wants to invest well long-term. If you are having difficulties managing risk, you can choose to consult with a broker from Saxo to help you with your risk management strategy.

Higher taxes

Traders in Singapore can expect to pay higher taxes on earnings from stock trading, as the Singapore government levies capital gains tax for those regularly buying and selling stocks. These taxes should be considered when trading in stocks to ensure that any earnings are not adversely affected by additional charges.

In conclusion

The expectations and realities of trading in stocks can be vastly different. It is crucial to understand both sides before investing so that traders know the potential risks involved and any potential returns. By thoroughly researching their options and managing risk carefully, investors in Singapore can make informed decisions when trading in stocks.