Stock market investing is a scary subject for some. It’s common knowledge that in order to make the highest return on an investment, you have to take on some risk–the higher the risk, the greater the potential reward. Savings accounts and CDs are great ways to protect your money while earning a bit of interest, but if you really want to see some gains, you have to dive into the stock market.
However, the tumultuous past few years, during which markets tanked and many investors lost half or more of their portfolios, have understandably frightened away lots of potential stockholders. So what can you do when you’re afraid of the stock market but don’t want to miss out on high returns?
Get Over It All Ready
The truth is, you’re going to go broke trying to save for big things like retirement or your kids’ college education if you don’t take advantage of the high returns offered by the stock market. In a time when you’re lucky to find a savings account that offers .50% APY, you just have to invest. The world of investing is really not as intimidating or difficult as you may think.
When it Comes to Stocks, Think Long-Term
Investing in stocks is not about trying to predict what thy market will do or rapidly buying and selling to make a quick buck. Contrary to common myths regarding investing, proper strategy involves dedicating a lot of time and research into which shares or funds would best suit your goals (or paying someone else to do it) and then holding those investments over a long period of time. Of course, regular adjustments should be made to your holdings as market trends change, but successful investing is all about a long-term approach.
You Can Invest in the Market Without Buying Stocks
If you’re still unsure, you can ease your way into investing. Participating in the “stock market” doesn’t necessarily mean buying stocks. In fact, you can invest in the market without buying a single share. There are a number of investment products that are tied to market indexes but aren’t quite as volatile and risky. Here’s are just a couple:
Market-Linked CDs (MLCD): These certificates of deposit are great for wary investors who want to get their feet wet. Basically, a market-linked CD is a certificate of deposit that is linked to the performance of one or more securities or market indexes, such as the S&P 500. If the index performs well, so does your investment. The best part is, however, that if it plummets, your principal is protected against loss.
Mutual Funds: Instead of risking your money in a single stock, mutual funds are a way to spread you investment across many securities like stocks, bonds, money market funds, etc. within one share without the need for a large amount of capital. Mutual funds are also controlled by a professional money manager.
Once you’ve become accustomed to how a couple of market-linked financial products work, you can diversify your holdings further and really begin to take advantage of the returns the stock market offers. Just understand that beginner investors should fully educate themselves about the securities they plan to invest in before committing any money. If you’re at all unsure about a potential investment, it’s best to speak with a professional.
Oftentimes people are not afraid of the stock market but they are mostly afraid that they lost their hard earned money. They are afraid to invest that money and it will be easier to take that risk if you consider that money as “gone.”