For many people the obvious route to take when thinking about investing is to head for the stock market. But is this really the wisest route for everyone?
There is certainly a lot of money to be made with stocks and shares. However there are significant losses that can be made too, especially if you don’t know what you are doing. Unfortunately some people are tempted by the potentially big gains available. This means they can end up investing money in shares that are not right for them.
So if you are considering investing in this way, here are some points worth bearing in mind before you do so.
Can you invest money you would be happy to lose?
This is the main point to bear in mind, even if you know little about anything else. Investing your life savings in stocks and shares is not a good move. If the stock market were to crash – and as we know it has happened before on more than one occasion – you could lose everything.
This is why it is wise to split your cash and invest it in a number of different ways. It spreads the risk you are taking as well.
Do you have an interest in the stock market?
You don’t need to know the ins and outs of how a car works in order to drive one. But when it comes to the stock market it does make sense to have a rough idea of how it works and what kinds of ups and downs you can expect. Otherwise there is a much higher chance of investing money in volatile stocks. There is also a higher chance of viewing the market through rose tinted glasses – seeing only the potential gains and not the potential losses.
Do you understand not all stocks are the same?
Here we simply mean that some are issued by big name companies we’re all familiar with – Coca Cola or Microsoft for example. Others are issued by small companies that are just starting out.
Everyone wants to invest in the next big global success. If you know what to pick you stand a chance of making a lot of money – just as you would have done if you had invested in Microsoft shares right at the very beginning. But picking future successes is very difficult to do – and best done with money you can lose if that’s what it takes. It is almost a form of gambling when you think about it.
While the breakout successes will achieve the highest returns, they are very few and far between. You are more likely to make gradual returns on a more stable stock from a well known company.
So you see you may not necessarily be the right person to invest in the stock market. It all depends on your level of knowledge, how much you are willing to invest and whether you can accept the ups and downs of this particular type of investment.