When it comes to the stock market, most people are slightly intimidated. But there really isn’t anything to be afraid of. The stock market is just like most things in life, you just need to do a little research. Most first timers are a little nervous, but with time, knowledge and wise choices, most are better off for their efforts.
The first thing you have to realize is that this is your money and your choice. Most people prefer to let the professional financial advisors handle their investments. That works. Whether you choose to handle your investments yourself or turn to an expert, you have to remember that you are the one in charge. You have to understand what you are dealing with.
Don’t be fooled into thinking that you have to have a significant amount of money in order to invest. This simply isn’t true. You can buy one stock and watch it grow. You can buy one stock at a time if necessary. But if you do invest, whatever you have, there is the potential that it will grow into a significant amount. All it takes is time and planning. People can make more money with time than they realize. Time really is worth money.
When we are talking of stocks, we are talking of what is called common stocks. A common stock is basically a security that represents a partial ownership of a corporation. The business can be anything from that small designer fixture business in your hometown to the largest companies in America. When you buy a stock, you are buying a part of the company. You are now a partial owner in the business.
By buying stocks you can watch your money grow. With stocks, you have the potential for greater growth than with CDs or savings accounts. But in finances, everything comes with risk. Stocks go up and down. There is no guarantee that you will make money. You could lose money. The key is in the investments you choose. This is where your financial goals and time to invest comes into play.
From 1960 to 1996, the average return of the stock market was 11.1%. I’ve heard advisors say that if you start early, you can expect 10% growth on your investments, on average. Remember, stocks go up and down over time. You have to look at the average, not just the yearly gains or loss. For example, one stock I own is down about 4% for the year. But on a five-year average, it is up 28%. Remember, time is the key for most investments. I like to think that with time, my risks go down.
There has never been a 10-year period in which stocks have not outperformed every other investment type. There is still risk. There have been people lose a lot of money. But if you have 10 years to invest your money, odds are on your side that your investments will do well. Of course, this is based on solid decisions, not just pointing and choosing stocks blindly.
Should you invest in stocks? The answer lies in your financial goals. But before you invest, take the time to educate yourself. To be a good investor, you need to have the knowledge to control your finances. And when you can control your finances, your money works for you. Yes, you can take the advice of others – there is a lot of advice out there. But in the end, it is your money. Know what you are doing.
Martin Lukac
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