Is It Okay to Invest in Stocks?

 Recently, the U.S. stock market has experienced an amazing rebound with stocks nearing historic highs. Although stocks are doing very well, people are still hesitant to invest in the stock market since the recession of 2007-2008.. Even though the nation is no longer in a recession of 2007, people still fear losing all their savings in a volatile market. People still feel the need to protect their money by moving it into more secure investments, such as treasury bonds and saving accounts in banks. However, stocks yield much high returns for the investor over the long run than such "safe" investments. Stocks do fluctuate, and investors will likely lose money sometimes.  But young investors should still consider stocks and here's why:

Over a 20 to 40 year period, stocks have almost always yielded higher returns than all other types of investments. The key is having a diverse portfolio of stocks and be prepared to hold it over many years. Short-term investing is particularly vulnerable to market fluctuations that often resolve themselves over time.

Quickly trading shares can hurt your bottom line. Buying and selling stock shares over the short term is known as trading. Trading stocks rapidly like you may see investors doing on TV can quickly increase your losses because of fees. Stock brokers charge higher fees for quick trades. By trading more often, you will also have to pay trading fees more often and pay higher taxes. Also, quick trading does not allow you to extensively research your stock choices. There’s too much information to keep track of if you’re making trades all the time, meaning you have to do it full-time if you want to do it well.

Diversifying the investment portfolio will help protect you from devastating losses. An investment portfolio is the set of assets that you own.  Diversifying your portfolio means  that you own stocks in many different types of industries. For example, you may own stocks in an exotic restaurant chain, a video game company, a soft drink company, and a textiles importing business. If the restaurants and textiles stocks drop (due to new international laws for imported food and clothing), your investments in the other two industries will likely be unaffected. Therefore, you have minimized your loss more than if you had invested in one industry alone. In practice, you will actually need to diversify your investments even more than in this example. Buying into a mutual fund is an excellent way to do this, as it allows you to own shares in many companies and industries. But there are good and bad mutual funds to choose from, which will be the subject of another entry.

READERS, what do you think?

Would you ever invest in the stock market?

Is there a stock that seems  worth the risk?

References:

Cable News Network. [n.d.]. Money 101: Tips for investing in stocks. CNN Money. Retrieved from http://money.cnn.com/magazines/moneymag/money101/lesson5/index.htm.

Yousuf, H. (2013, February 5). Individual investors still nervous about stocks. CNN Money. Retrieved from http://money.cnn.com/2013/02/05/investing/individual-investors-bull-market/index.html.