Why Invest In The Stock Market

The potential for higher profits are far better from the stock market than from many of the other safe investments available. $1 wisely invested in the stock market can bring many multiples in returns over time when compared to leaving money in a bank for example where interest can be very shockingly low.

Many people believe that the stock market is too risky, I agree there is an element of risk, and yes you could potentially lose your capital, but beginner investors who take the time to educate themselves and fine-tune their investment skills have a far better chance of getting much better returns on their capital than those who opt for 100% safe investments.

It’s also important to note that often, when one leaves their money in a bank, the actual returns from the interest do not even cover the cost of inflation – in some cases it’s possible to actually lose money in real terms because inflation is higher than the net interest received.

In fact, investing in the stock market offers something for every type of investor, from the risk averse to those who are willing to take on calculated risks in order to achieve higher returns. There are also scores of investment funds where the investor does not need to know very much about stock markets or investment techniques – the fund manager invests on your behalf, usually in return for a fee.

There is of course no guarantee that a fund will deliver outstanding performance (or will not incur a loss) but if anyone ought to know about beating the market, it would be the fund managers who are paid good money to invest millions of dollars.

Having said all this there are also risks inherent with stock market investment. When you deposit your money in a bank your capital is not really at risk – with stock market investment you run the risk of losing all the money that you invest if the stock goes bust.

Also, while many analysts look at past performance of companies and markets we all know of the disclaimer that says “the past is not necessarily a guide to future performance” – in other words what has brought success before may not always bring success in the future. The market can be a real enigma at times.

There have been times in the past where stocks with no solid past and no apparently clear business models have seen their prices double, treble and even increase tenfold in a short space of time. Who can forget the techno-bubble in the late 1990’s when almost all stocks that employed an internet based business model would see unquestioned success.

These were stocks that really had no sound fundamentals, yet people would throw money into them in the belief that the internet would make them profitable. Conversely, some stocks that have wonderful fundamentals, strong management and seemingly excellent growth prospects can endure long periods of stagnation in stock price.

Such are the ways of the market – but over time the market tends to correct itself. Great stocks are ultimately uncovered. And the poor ones are equally found out!
There can be no guarantees with the stock market but believe me, there is a method and art to investing and trading…it’s also highly exciting and will put you through the range of human emotions, from extreme joy to worry and elation and despair.The golden rule here is - Only invest amounts that you can afford to lose!