Pros and Cons of Investing in Securities: Differences from Investing in Other Assets

To consider the pros and cons of investing in securities, it is necessary to clearly distinguish this form of investment from others. Unlike real estate, which requires large sums and maintenance, or cryptocurrencies, whose price depends on hype, stocks, for example, are based on the economic indicators of companies, industries, and countries. This is a classic market where logic, forecasts, and economics prevail, not speculation on luck.

The key advantage is the scale of opportunities. From one account on the stock exchange, you can invest in industry giants, IT, pharmaceuticals, agriculture, real estate funds, gold, Ministry of Finance bonds, or emerging countries. And all this — at any time, from any device, starting with minimal amounts. Moreover, investing in securities remains a legal, regulated, and transparent way of accumulating capital.

Profitability in numbers and real situations

The positive aspects of investing in securities are better revealed through specific examples. For instance, dividends from shares of major companies create a stable stream of passive income. Sberbank or Lukoil shares at certain periods yielded over 12% annually just from dividends — without considering the growth of the stock itself. And when compared to a bank deposit at 7%, it becomes clear why investors view the stock market as a priority.

Additionally, stock price growth adds to capital. Yandex shares increased from 2,100 to 6,000 rubles from early 2019 to the end of 2021. Even without considering crisis corrections — almost 200% growth in two years. By adding dividend reinvestment and a long-term strategy, you can achieve an annual return of over 20%. It is important to emphasize that such profitability is only possible with a strategy. Passive ownership, diversification, understanding of macroeconomic trends — without these, the market may not forgive mistakes.

Key advantages: why investing in securities should be considered first

Investing in securities, although not without drawbacks, offers a number of significant advantages that make it a versatile tool for capital formation and growth:

1. Liquidity. Selling shares or bonds takes seconds. This provides flexibility: you can quickly exit a position in a crisis or shift capital to a more profitable sector.

2. Accessibility. Most brokers allow starting with 1,000–5,000 rubles. Through an individual investment account (IIA), the investor receives tax deductions, thereby increasing profitability.

3. Passive income. Shares of companies with regular dividends act as a “pension fund”: money flows in without active actions.

4. Inflation protection. Unlike ruble deposits, the value of assets can grow along with inflation.

5. Wide choice of strategies. You can build a portfolio of growth stocks, dividend securities, bonds, or exchange-traded funds, aligning with goals and horizon.

It is important to note that the pros and cons of investing in securities manifest depending on the approach. A passive investor does not chase the maximum but steadily grows capital. An active trader, on the contrary, captures fluctuations but takes on more risk.

Cons: where risks and pitfalls lie

Even the strongest markets carry risks, especially for beginners. Mistakes can be costly if entering the process without understanding basic mechanisms. The main drawbacks of investing in securities include:

1. High volatility. Quotations change daily. Even major companies can lose 10–15% in a week. Without nerve stability and liquidity reserves, such downturns lead to panic and mistakes.
2. Complexity of choice. The market is saturated: tens of thousands of instruments, hundreds of industries, news, reports, forecasts. Without a system, it is easy to fall under the influence of hype and invest in an asset devoid of prospects.
3. External environment risks. Sanctions, geopolitics, crises, pandemics — all affect quotations. Securities can fall, even if the company is successful, simply due to overall market panic.
4. Need for discipline. Investing requires regularity. One successful month will not replace a systematic strategy over 3–5 years.
5. Psychological traps. Greed, fear, FOMO, the desire to “recover” losses lead to wrong actions. Psychology is a key factor in the failure of most novice investors.

The pros and cons of investing in securities are often interconnected: the opportunity to earn above the market is accompanied by the risk of losing capital without experience and strategy.

Pros and cons of investing in securities: how to build your first portfolio

At the start, it is important not to try to “guess” the most profitable stock. It is better to assemble a balanced portfolio with different instruments. The optimal ratio: 60% — reliable bonds, 30% — shares of stable companies (e.g., Norilsk Nickel, Surgutneftegas, MTS), 10% — growth stocks or a fund on NASDAQ.

Connecting an individual investment account (IIA) provides a tax deduction of up to 52,000 rubles annually if you deposit up to 400,000. This is a free bonus from the state that acts as a profitability booster. Investing in stocks for beginners is better done through funds. Exchange-traded funds on the Moscow Exchange or S&P500 index allow for immediate diversification and minimize selection errors. Simplifying the process allows you to focus on strategy rather than speculation.

How to learn investing from scratch and not lose capital

Basic financial literacy is the key to success. There is no need to immediately take courses costing tens of thousands or read complex reports. It is enough to:

1. Learn the terminology: stocks, bonds, lot, commission, T+2, IIA.
2. Test trading on a demo account.
3. Choose a large licensed broker (e.g., Tinkoff, VTB, Sber).
4. Start with simple strategies: buying mutual funds and dividend stocks.

A slow and systematic approach helps avoid mistakes. Passive income from stocks is not a myth if you choose assets correctly and do not intervene in the portfolio with every fluctuation. The pros and cons of investing in securities become more apparent in practice: a knowledgeable investor turns volatility into an opportunity, while an inexperienced one turns it into a loss.

Pros and cons of investing in securities during instability

The stock market is a mirror of the economy. In times of crisis, it falls first but also recovers faster than other sectors. Investing during a crisis opens up opportunities if you correctly identify recipient industries. For example, during the pandemic, pharmaceuticals, online education, and IT grew. In a sanction reality, metallurgy, exporters, and agriculture thrive.

However, sanctions and regulations hinder access to foreign markets, especially through foreign brokers. Therefore, it is important to keep the portfolio on a reliable platform licensed by the Central Bank. Diversification across countries, currencies, and sectors helps preserve capital. And regular investments following the “averaging” strategy neutralize short-term downturns. For example: buying securities at 100, then at 70, then at 80 — gives an average entry point of 83, and already with growth to 90, fixing becomes profitable. The pros and cons of investing in securities are particularly evident during turbulence: some panic sell, others buy assets at a discount.

Conclusion

A well-structured portfolio, regular investments, adaptation to market cycles, and risk minimization through diversification work even without complex strategies. The pros and cons of investing in securities depend not on the market itself, but on who uses it. With a sensible approach, this tool becomes a personal financial engine capable of ensuring sustainable capital growth over a 5–10 year horizon.