Stock market investing is no different to undertaking any other activity in that if you want to be successful at it, you need to learn to balance risk and reward.
For example, earning a living by starting a business is riskier in some respects than working for an employer.
Entrepreneurs usually need to invest their own money into their business and survive with little or no income for a while, whereas employees expect to get paid just for turning up.
The reason why entrepreneurs are willing to take the risk with their money in this way is because the rewards they receive from being their own boss and the potential for financial success are much greater.
In other words, an entrepreneur expects to be rewarded more for taking a bigger risk.
So it is with stock market investing.
Investing In The Stock Market
Irrespective of which stock market you are thinking of investing your money in, you will find the following:
- The stock market will contain large blue chip company shares, mid-range medium-sized company shares and small company shares;
- The companies represented in the stock market will be from a variety of industries;
- Some of the company shares will be doing well and rising in price at the moment and others will be doing badly and falling;
- Some of the company shares will be providing income and others not;
- Some of the companies will be making a profit and others not;
- Some of the companies will be operating in a cyclical industry and others not;
The point I’m trying to make here is that there are a wide variety of different company shares in any stock market that you can invest your money into and that it doesn’t really matter when you start.
You can make money in the stock market at any time, if your money is invested in the right company shares for your circumstances.
What is certain though is that you can not make money in the stock market by avoiding it.
Risk And Reward Explained
It is generally accepted knowledge that company shares are considered to be more risky than corporate bonds, which are considered more risky than government (treasury) bonds, which are more risky than cash savings.
Over the long-term (several years) company shares have produced much higher returns than corporate bonds, which have produced better returns than government bonds, which have produced better returns than cash.
There is much evidence available on the internet to demonstrate this – take a look at the Barclays Capital Equity Gilt Study or the Morningstar Ibbotson SBBI Classic Yearbook, for example.
It therefore follows that bigger returns can be had over the longer term by taking more risk with your money in the short-term.
This is the KEY POINT that most doubters and stock market dodgers ALWAYS MISS!
I’ll say it again, louder…
Bigger Returns Can Be Had Over The Longer Term By Taking More Risk Over The Short-Term
Stock markets do have a habit of falling sharply now and again and if this happens just before you want to take your money out of the market, it’s bad news for you.
However, stock markets have a tendency to bounce back and then recover more slowly, eventually getting stronger and growing higher in the longer term.
That’s because shares are bought and sold by people and we are strange creatures in that we are slow to build our trust in something again after we have had our fingers burned.
It is a simple fact of life though that you cannot avoid risk altogether so you need to learn to understand it and manage it.
Much like learning to cross the road properly so that you don’t get knocked down – all roads contain cars and there is always a chance that one will knock you down, but not if you follow a tried and tested process such as looking, listening, finding a safe place to cross, waiting for a big enough gap in the traffic, etc.
So it is with stock market investing – follow a tried and tested process, look for the right data, analyze and make good decisions, buy and sell at the right time, etc.
Do that and you will get to enjoy higher rewards with much lower risks.
How To Invest In Shares
If you think stock market investing might be for you then you can learn more about how to start investing right now by signing up for the FREE guide below.
With opportunities like these, if you want to start investing in the stock market and learn how to invest in shares, then there’s no reason to wait any longer.