Investing in the stock market trading becomes less risky as the time frame lengthens. Stock prices tend to fluctuate daily, but they tend to trend up or down over an extended period.
Various stocks are out there, as well as various investment approaches. The key to success in the stock market is matching the right kind of stock with the right kind of investment situation. You have to choose the stock and the approach that match your goals.
Before investing in a stock, ask yourself, “When do I want to reach my financial goal?” Stocks are a means to an end. Your job is to figure out what that end is or, more importantly, when it is. Do you want to retire in ten years or next year?
Must you pay for your kid’s college education next year or 18 years from now? The length of time you have before you need the money you hope to earn from stock investing determines what stocks you should buy.
Dividends are payments made to an owner (unlike interest, which is payment to a creditor). Dividends are a great form of income, and companies that issue dividends tend to have more stable stock prices as well. Every investor has a unique situation, set of goals, and level of risk tolerance.
Remember that the terms large-cap, mid-cap, and small-cap refer to the size (or market capitalization, also known as market cap) of the company. All factors being equal, large companies are safer (less risky) than small companies.
Investing for the Future Are your goals long-term or short-term? Answering this question is important because individual stocks can be either great or horrible choices, depending on the time period you want to focus on. Generally, the length of time you plan to invest in stocks can be short-term, intermediate-term, or long-term.
Investing in stocks becomes less risky as the time frame lengthens. Stock prices tend to fluctuate on a daily basis, but they have a tendency to trend up or down over an extended period of time. Even if you invest in a stock that goes down in the short term, you’re likely to see it rise and possibly go above your investment if you have the patience to wait it out and let the stock price appreciate.
Investing for a PurposeWhen the lady was asked why her bungee jumped off the bridge that spanned a massive ravine, she answered, “Because it’s fun!” When someone asked the fellow why he dove into a pool that was chock-full of alligators he responded, “Because someone pushed me.”
Your investment in stocks shouldn’t happen unless you have a purpose that you understand, like investing for growth or investing for income. Even if an advisor pushes you to invest, be sure that your advisor gives you an explanation of how that stock choice fits your purpose.
An elderly lady who had a portfolio brimming with aggressive-growth stocks because she had an overbearing broker. Her purpose should’ve been conservative, and she should’ve chosen investments that would preserve her wealth rather than grow it. The broker’s agenda got in the way. Stocks are just a means to an end. Figure out your desired end and then match the means.
THE AUTHOR: Green Anthony
