One question which is often asked by many people when they talk about “where to place money” is the following one:
If stocks realize a return of around 8% to 12% per year over a long period of time, why doesn’t everyone invests money into the stock market? Why are there so many possibilities where they place their money?
It seems that stock investing is a good method to earn money. Buying stocks and trading shares is an interesting and exciting game. Why put so few people money into the stock market?
The first answer is that not everybody has enough money for buying stocks. Most people need the money to finance their homes, lifestyles and children's. They have to pay bills at the end of the month they don't have enough cash to save which they could use for stock trading or long-term investing.
A second answer is that the stock market is also the best place to lose money very fast. Stocks go up and down by 1% to 5% per day in a normal case, tail risks not included. That's too much for an anxious investor. People like safeness. They don't want volatility.
If you like to play with money you can also travel to Las Vegas. It's much more exciting to play with your money there because the showbiz effect is much higher.
The stock market offers a higher risk than other investments with a fixed income like bonds. Gold and commodities with a daily use getting more and more attractive for investors. All these are popular alternatives. But can you make really money with it?
Derivatives is the fastest growing asset class at the market. With these products, you can hedge nearly everything that has a market price. You can buy assets which don’t exist today and will be produced in five years or so. Everything is possible.
Trading is getting more and more complex and people want this. The market delivers only and tries to satisfy the need of the population or investment community.
For people with a lower risk appetite are the mentioned assets an attractive alternative to get diversified from the stock market.
If you have a small investing budget and your thoughts are floating around exchange trading funds (ETFs) or index funds because everybody talks about it and they seem to be the right investment vehicles for you, please make a deeper research before you buy those products. You should consider if this is the real place to put your money in.
Sure it's a great way to get diversified with low commissions if you have only 500 bucks or so. But let me mention: Today's trading costs are so low that you can buy stocks for only one dollar per trade. That's not much.
If you like you can place a few hundred bucks for a dollar of trading cost and start to build your own portfolio. All you need to do is watching or hunting for the best stocks with a solid business model, a trustful management and growth potential. You also need a little bit luck.
Stock investing is not only luck and hard work via trading. 90% of successful stock investing is research and patience.
What are your thoughts about success stock trading? Are you a successful trader? Let me know and please leave a comment below!