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The Myths And Facts Of Investing In Stocks
We all know that Stock Market Investing is a great idea, and it does make sense to make money from major market rallies and declines. That is how insurance companies grow their clients’ contributions in annuity products. But even traditional IRA, and 401K savings plans don’t use stock market investing as efficiently as private insurance firms and pension funds, in that they only make their money when the stock market goes up .
Savvy insurance firms make money no matter what direction the market takes , or at the very least, they hedge their investments so well, that they hardly ever risk losing more than 20%, even in the worst possible scenarios . The traditional 401K industry on the other hand is not hedged, and it only makes money during stock market rallies , while risking everything when markets start going down. Here are some of the facts and myths that even those 401K fund managers are not aware of, or just can’t be bothered to figure out.
Some of the greatest stock market myths:
1. Stock markets always go up in the long run
Incorrect ! Indices do go up over time , but if a stock is severely underperforming it gets de-listed, and a different one will take its place. What if the stock you you investing your savings into gets hit hard and is finally de-listed? Markets will sure rally back but without your stock! And you certainly don’t want your 401K account to include these types of stocks .
2. If you diversify too much you will eliminate risk
I don’t think so ! If you diversify too much you will get in a situation where, your total investment will make a very tiny return, possibly even less than 5% per year . Really that is a losing deal or at best, a breakeven deal when you think about the cost of inflation .
3. If that earning’s report is good, the stock will go higher
Not necessarily! The good news may already have been baked into the cake, the stock can still go up or down .
4. Your broker can help you as they have the best analysts
I don’t think so ! Brokers make money in different ways, and they don’t have qualified analysts to make you money. Unless you have direct information from an investment banker, really there’s no other infallable way to predict the market .
Stock Market Investing In Reality…
The stock market is able to provide decent, high potential for profit stocks, and you can even plan your retirement based on it. Unlike what many, so called ‘investment professionals’ will tell you about 10% or 20%, you can in fact make a whole lot make lots } more! But it requires doing a lot of homework and following market trends everyday. You can for example develop stock market investing strategies that involve purchasing the same stocks at regular timeframes , and liquidating them when they show a small return of around 5% to 7%. But because you repeat the process many times over, you end up making a lot over the year.
Seasoned investors and investors make as much as 200% per year, that is tripling their start up capital. They usually allocate a small amount of their money to this strategy as it is considered risky and stressful, but this risk and stress are not worth suffering unless they can triple their money !
Generally , stock market investing is not for everyone and it’s easy to make stock market investing mistakes, only those that are serious should consider it, but it is very rewarding . And these serious, rational people, are not the people who believe in luck, and who go to the casino every week, these are rational people who analyze the market objectively , and keep their emotions out of their investment decisions. For those who just want to have a self directed IRA and make their own stock market investing decisions through it, they can choose an investment strategy, one that is stress-free, and needs to make no more than 20% per year. It’s conceivable to do that, and even that 20% annual return will make their retirement day come a lot faster !
