The stock market gets a lot of attention when it comes to the financial sector, but it can be difficult to know what to believe about “the market.” Is the stock market fraught with ups and downs that can make you lose your money? Or is it your savior for building a nest egg? In reality, the truth is somewhere in between these two extremes. Utilizing the stock market as part of your financial plan can be valuable if you understand its role and incorporate investing to a level that’s right for your risk profile and for your goals.
Here are a few things to know:
Investing in “the market” doesn’t have to be high risk
If you invest in a single stock you will have a risky investment, but there are ways to incorporate investments in your plan without it being high risk. In general, incorporating a long term, diversified investing plan will help to support a plan for the future. In fact, it has often been shown that investing in low-risk stocks for the long-term yields higher returns than investing in high-risk ones that may need to be flipped quickly.
Investing in stocks is not the same as gambling
Many people feel anxiety about investing in the market because it seems like an unsafe bet when it comes to financial planning. It can be equated to gambling or throwing your money into a void when in reality, it’s a much more strategic endeavour that takes study and knowledge to make it work for you. Assessing the value of a company is complex and investors trying to determine the profit of a stock helps to drive the uncertainty tied to stock market investing. Additionally, gambling is a straight give and take where there is a loser and a winner whereas more investment in the market tends to increase the overall wealth of an economy.
The market will fluctuate
While investing isn’t the same as gambling, you should be prepared for market fluctuation. The market reacts to triggers and forces that are outside the typical investor’s purview, but the result is that the market can rise or drop seemingly with no reason. To build a long-term strategy around investing, it’s important to be patient when the market takes a dive and remember that you are in it for the long haul. If you’re nervous, contact your financial planner but remember that the market is expected to fluctuate!
Stocks that go down don’t always come back down (or the inverse!)
It’s easy to think that anything that rises will drop again but that isn’t necessarily true for individual stocks. Stock price can reflect the inner details of a company and if a company continues to grow and succeed, stock price can continue to rise. Alternately stocks can continue to go down if the circumstances warrant it making it unwise to build a strategy around identifying falling stocks.
The stock market isn’t only for the wealthy
Just like financial planning in general, investing in the stock market can be utilized by a variety of investors. You don’t need to have a high net worth or deep pockets to start investing. Whether you’re ready to invest a few dollars or multiple thousands, you’ll receive the same rate of return on an individual investment making it accessible to many.
As you can see, there is a lot to learn about investing, but it can play a strategic role in your overall financial planning. It’s important to base your investments on your particular financial goals, your comfort with risk, and facts rather than speculations. Work with your financial advisor to build a plan that works for your and your family.