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.
