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!