Saturday, January 14, 2006
Introducing Stocks and Investing to your Personal Finance Goals
The stock market is an intimidating place for those with limited investing experience. Everyone has heard of people who struck it rich off of wise investments in stocks, but we have more experience with people who have lost large sums of money (and their mind) in the market. It is easy to see why an investing novice, after seeing these two drastically different outcomes, would assume that stocks are nothing more than a gamble. While true in some cases, this is simply not true of all stocks in general. Now do not misinterpret this to mean that any stock is guaranteed. No matter what stock you are dealing with one of three things can happen. It can increase in value, decrease in value or stay dormant. The good news is that the S& P 500 (a index of the 500 most widely traded stocks) has increased in value by 10% per year since it’s inception in the 1830’s. This tells us that stock prices, in the long run, have historically followed a positive trend. There is a good chance that if you had chosen a random stock back in 1830, it would be worth a lot more today. What is true of the whole (on average) is of course not true for each individual stock. This entry will guide you in determining the right stocks for you.
Before you start investing in the stock market, it is important to understand what your goals are. No one invests in the market (or anything for that matter) without a purpose. What are you hoping to achieve with your money? Different stocks have different benefits and drawbacks. In general, the greater the risk, the greater the return. The goals that you have for your money will determine the amount of risk you are willing to tolerate. For example, if your goal were to maintain the value of your investment, you would not invest in a highly speculative (and therefore highly risky) technology company. The length of time you plan on investing for should also weigh heavily into your decision. Are you willing to wait a few years until the stock you own reaches a higher price? If you are going to need money in the short term (that is, within a year) the stock market may not be the best choice for you. Of course, every situation is different. The important part is to realize what your situation is and ensure your behaviour is inline with what you need to do to reach your goals.
The one aspect of investing that cannot be understated is the power, and therefore the importance of good information. I think most novice investors underestimate the amount of work successful investors put in to choose their investors. There is idea that savvy investors are just playing off of smart hunches or instincts that they have. Nothing could be further from the truth (most of the time). Smart investors understand the stock market and have spent considerable time researching and learning about it. Thankfully, a lot of quality information can be found on the World Wide Web. Websites like http://www.investopedia.com and http://www.fool.com provide tutorials for new investors to learn all about investing in stocks. By thoroughly reading through either sites collection, you can gain a quality foundation to branch off from. Articles by well-respected finance reporters on these sites will keep you informed on current ideas and issues in investing. It is very important to keep up to date with currents events pertaining to finance and investing. Reading a variety of publications including newspapers (some are more business-focussed then others), magazines and periodicals will keep you up to date. Furthermore, blogs (like http://seekingalpha.com/ http://www.pfblog.com or this one!) can serve to keep you abreast on important investing information. You can be sure to expect entries about interesting developments in investing right here in the future!
Before you start investing in the stock market, it is important to understand what your goals are. No one invests in the market (or anything for that matter) without a purpose. What are you hoping to achieve with your money? Different stocks have different benefits and drawbacks. In general, the greater the risk, the greater the return. The goals that you have for your money will determine the amount of risk you are willing to tolerate. For example, if your goal were to maintain the value of your investment, you would not invest in a highly speculative (and therefore highly risky) technology company. The length of time you plan on investing for should also weigh heavily into your decision. Are you willing to wait a few years until the stock you own reaches a higher price? If you are going to need money in the short term (that is, within a year) the stock market may not be the best choice for you. Of course, every situation is different. The important part is to realize what your situation is and ensure your behaviour is inline with what you need to do to reach your goals.
The one aspect of investing that cannot be understated is the power, and therefore the importance of good information. I think most novice investors underestimate the amount of work successful investors put in to choose their investors. There is idea that savvy investors are just playing off of smart hunches or instincts that they have. Nothing could be further from the truth (most of the time). Smart investors understand the stock market and have spent considerable time researching and learning about it. Thankfully, a lot of quality information can be found on the World Wide Web. Websites like http://www.investopedia.com and http://www.fool.com provide tutorials for new investors to learn all about investing in stocks. By thoroughly reading through either sites collection, you can gain a quality foundation to branch off from. Articles by well-respected finance reporters on these sites will keep you informed on current ideas and issues in investing. It is very important to keep up to date with currents events pertaining to finance and investing. Reading a variety of publications including newspapers (some are more business-focussed then others), magazines and periodicals will keep you up to date. Furthermore, blogs (like http://seekingalpha.com/ http://www.pfblog.com or this one!) can serve to keep you abreast on important investing information. You can be sure to expect entries about interesting developments in investing right here in the future!
# posted by mikeyarmo @ 1:44 PM 
