Gambling or Stocks?
When it comes to investing there can be many risks. Investing in only stocks is the most risk you can take in terms of investing. However, with time on your side stocks can be the most rewarding type of investing. So, is investing in stocks like placing a bet on a sports game? In my opinion no, but if you don’t know what you are doing it can be about the same. Here are some of the major risks to consider when investing in stocks, understand the risks and how to “beat the odds” and you can’t lose.
- Economic Risks – The stock market is driven by the economy so if the economy is doing really bad more than likely the stock market is going to do really bad as well. When the terror attacks happened in New York in 2001 the economy saw the lowest levels it had reached in years. It has take many years for our economy to bounce back from the losses. The key point to remember is that it did bounce back. Investing in stocks are a much better idea for a young investor rather than an older investor close to retirement. Just remember the old saying “buy low, sell high” and don’t get rid of stocks just because they take a large drop in price.
- Inflation – Inflation is the increase of goods and products over a period of time. Investors on a fixed income hurt the worst when investing. Since prices of necessary goods and services increase less money is available to invest in stocks. The best time to invest in stocks is when the prices are low so it’s a bad situation.
- Market Value of your stocks goes south – Market value in financial terms is the price per share multiplied by the number of shares outstanding. The market value will obviously decrease if the price per share decreases. Many factors can influence this but a major factor is a competitor offering the next “hot item” causing investors to change course and leave stock prices falling. Again younger investors can take advantage of this opportunity and buy more of the stock at a lower price, because more than likely when the newness wears off of the other product the prices of this stock will slowly increase back to the original value.
- Investing in one or two stocks – This is the biggest risk of all, never invest in only a few stocks!!! There have been major companies, worst example, Enron where shares climbed from around $30 to $65 in a matter of a few weeks and topping out at around $90 in a couple of months. Then BANKRUPT leaving many investors without any retirement savings. If you are going to invest in individual stocks be sure to diversify your portfolio. Invest in several strong companies not just relying on a single company to lead you to retirement.