Although this website contains a variety of tips on stock investing, it is equally important to know when not to invest in stocks. After all, stocks don’t always go up and sometimes all stocks go down. In those times, you win simply by not having money in the market. Remember that you don’t always need to have your money invested! With that in mind, here’s a few tips to help you determine whether you should even be involved:
1) Can You Afford It? - Stocks are one of the volatile instruments in the investing world. Are you sure you really want to be investing in stocks? In a single week, your stock can go up or down 10s of %s. Your $100,000 investment can become $20,000 in a day because of bad news. If you need this money for your son’s tuition, or if losing 20% of all your money will give you sleepless nights, this really isn’t the thing for you.
Oftentimes, conversative people who try to save nickels on their bagel will put a substantial amount of life savings into stocks. Before you do that, consider the emotional impact, especially if you scrimp and saved all your life for your money. Do you really want to worry about your investment at night? Even if you do get lucky and make $10,000 extra this year, is it worth 365 sleepless nights lying awake? Many times, the extra money is not actually worth the trouble.
On the other hand, if you have millions of dollars and $100,000 isn’t really a big deal to you at all, then by all means take some risks with it!
2) You’re not guarenteed to make money - Yes, stocks have done well on average over the last century or so, and on average probably will for the next century, but that’s no guarentee that it will for you. What happens in the future is anybody’s guess. If it was so predictable, then everyone would invest in stocks and the returns would be like your savings account. It’s precisely because of this extra risk that stocks give a higher return.
Unfortunately, risk means that you can lose money. You can do all the research you want in the world, and even make the best choices about the companies that have the most potential. 40 years later, you could still be penniless. Life is kind of unfair that way. Even if you make the best possible decisions you can make, you can still end up with nothing. Make sure that you are okay with that fact before you invest. Understand that you can lose big time on it.
3) Is There A Better Alternative? - Even if you are 100% guaranteed to make money from stocks, it doesn’t necessarily mean you should do it either. Hey, your savings account gives you an interest every year, but you’re here considering stocks!
That is, of course, because stocks have higher returns on average than your savings account does, but you may be surprised to know that there other options with even higher average returns than stocks. For example, starting a start up like this <a href=”http://www.wmmediacorp.com”>website buying</a> company may make you a millionaire within a few years, or starting a technical company like Google that’ll make you a billionaire within a decade. What kind of return is that?!
If you have an idea and the conviction to carry forward, why dabble in somebody else’s company and trust your fate to it? You have the power to create stock of value and make it your own!