This is probably the most traditional form of investment pre-Internet. And has it gone away today? No! Quite to the contrary, it's alive,
revamped and there is a lot more opportunity to make money...and lose money...from the stockmarkets.
Is it worth putting money on the stockmarket?
Classical question, to which I will give the classical answer. It depends how long you want to keep the money in there for.
If you want to, and can, leave the money aside for 5 years or more (i.e. you are putting some of your SAVINGS into the stockmarket),
then definitely YES. Whilst past performance is not a guarantee of future performance, the stock market tends to outperform other
forms of investments in the long term.
Then what if I want to make a short-term gain?
Once again, I will give a classical answer to this classical question. BE CAREFUL. You can also LOSE money on the stock market.
Yes, it's very true.
Many, many people have lost money on the stock market. Some have become bankrupt, some have committed suicide over it.
But many people earn big money in the City and Wall Street doing just that, don't they?
True. But you cannot and should not aim to compete with them. First, you do not have the resources, database, training and time to
research stocks as much as they do. Second and more importantly, you do not have the huge financial backing that the banks/funds
have to leverage or hedge your positions. And finally, even they lose money. They just don't publicise it as much for obvious reasons.
Click here to read an article on that matter.
Therefore, you should only play the stockmarket with money that you can afford to lose!
If you do want to play the stockmarket, please consider the following advice which, once again, is not exhaustive:
1. If you want the potential for higher gains, consider buying Contracts for Differences (CFDs). These are sophisticated derivative
products that are now available to the public. You only put down a fraction of the money you want to invest on the stockmarket and
borrow the rest. Obviously, you pay interest on the amount you borrow. This means that your investment is then geared. You stand to
make stronger gains, but also more painful losses! I invested $3,500 in a CFD on a blue-chip company in August 2006. I am still
licking my wounds!!
2. Bear in mind that you don't have to trade only in stocks/shares anymore. You can trade on gilt bonds, derivatives and commodities
such as oil, gold and silver. If you feel you have some better knowledge about a particular market, go for that!
3. Research the market. For example, every day, I read This is Money. Every weekend, I read the Money and Business Section of The
Guardian. I try to pick blue-chip stocks that are giving a relatively high dividend yield. This is interesting for 2 reasons.
(a) If, like me, you are buying stocks on a CFD, you will pay interest the longer you hold the position open. However, you will also be
paid dividend. Hence, a higher dividend helps to offset the cost of keeping the position open;
(b) Such stocks may soon attract hot money hence pushing up their price;
Obviously, you need to take this with a pinch of salt, so ALWAYS research the company first to try to ascertain why this is the case.
For example, has there been a profit warning issued recently?
My tips for stockmarket investments are:
1. Invest in currencies - the markets and less volatile and more predictable;
2. Invest in funds - they are less volatile and still offer good value;
3. Never act on inside information - you can go to jail for that!
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