Investing for Beginners
User CPT Kangaroo (Opens a pop up layer) Contributor
I totally understand the initial response to your post - the Stock Market often seems like a scary place.
However, investing in the market is something EVERYONE should do! In fact, one of the greater purposes of the stock market is allowing all Americans the opportunity to invest in our country, and to share in the benefits of its prosperity.
That being said, every investment is a risk. There are ways to mitigate that risk, but first, a few ideas about investing to keep in mind:
-WAITING is the most important part of investing:
The Market (as a WHOLE) has ALWAYS trended up. This does NOT mean that there aren't periods of crashes and bursting bubbles and housing market collapses. It means that, if you were able to invest in every part of the market, whether or not you make money is entirely based on whether or not you're willing to WAIT.
-You're better off on YOUR OWN:
Putting your money into a Savings Account bears very little interest. Comparatively, the lowest annual return of the stock market (if you invested just before the Recession) is 4.3%. Most individual investors will average a 7-8% annual return, while those who invest through a broker or investment manager will average a 6-7% return. This is often because of overhead costs that come from paying a specialist to invest for you.
-DIVERSIFICATION is the best way to minimize risk:
Diversification just means dipping your financial feet in as many pools as possible. The more your portfolio of investments looks like the overall market, the more likely you are to make a profit (IF you're willing to WAIT) - however, this could also prevent you from bigger profits from riskier bets.
-DON'T MAKE RISKIER BETS!
Financial companies use complex trading algorithms utilizing enormous processing power and ultra-high-speed connections built into the very heart of the Internet => don't think that you can trade better or faster than they can. Learn as much about investing as you can, but know that you'll always be second to SkyNet/The Matrix/Warren Buffet.
-USE INDEX-LINKED MUTUAL FUNDS / ETFs:
An easy way to diversify and mitigate risk is to use mutual funds or exchange-traded funds (basically the same thing, but they have prices that change throughout the trading day, while the price of a mutual fund share is determined at the close of the trading day). Even better, in my opinion, is using Index Funds that match their performance to a specific market index. You can also choose LEVERAGED funds that seek a return that multiplies the performance of a market index. For instance, I invest in a fund that seeks to perform 2x the return of the Dow Jones U.S. Biotech Index (DJUSBT). This means that, if the index performs poorly, I lose twice as much. But if I stay in over a Looooooonnnnnggggg period of time, then I can expect to get pretty consistent returns on my investment.
I could go on forever... but I hope that bit helps!
I'm not a financial specialist, and I only invest for fun/profit. If anyone disagrees with any of the above, please feel free to take me to school :-)