Lawrie Walters, Sydney Australia

Maybe you currently do not invest, because you think it is too risky. Or perhaps you own stock in the past few years, and seriously reconsider their investment strategies, because your portfolio has taken a turn for the worse during the recent bear market and still has not recovered. If any of these situations applies to you, you have company.

In connection with the recent financial crisis, many people could not understand why and how they should invest in the stock market. For many, the thought of investing in the stock market has become nothing less than frightening. The vast majority of people have seen their portfolios take a dive, or at least I know other people who have lost big money in the stock market.

The declining value of their portfolios, many people were forced, at least temporarily change the direction of his life or career. Many people who were close to retirement need to postpone retirement because their 401k lost too much money.

Others stopped investing in the stock market in general. They decided that it was too risky. If you’re one of those people who have completely given up the stock market, or if you simply decided to remain on the sidelines for a while, I would like to outline several reasons why you should review their investment strategies.

First of all, let’s define the investment. According to the Merriam-Webster Online Dictionary, Invest basic meaning of the word “is” to take the money to obtain financial gain. “Using this definition, it could potentially classify a number of financial activities as an investment.

Some people argue that investing in a savings account is an investment. You probably have a savings account. Savings account is a safe place to store money as you’ve made money insured by the federal government up to $ 250000. The problem is that savings accounts offer very low interest rates are generally much lower than the inflation rate, which usually hovers around 3 percent. If your money lose more inflation than it receives in the form of interest, then, since you’re not experiencing a real financial return on your money, whether or not to invest?

Money market funds, for most practical purposes are very similar to savings accounts. They generally pay slightly higher interest rates than savings accounts, but usually have higher minimum balance requirements. Although these accounts may pay higher interest than traditional savings accounts, the real yield is very low, when adjusted for inflation. Furthermore, unlike savings accounts, there is very little risk of losing money is actually a money market fund.

CD, DVD, or certificates of deposit, are also a popular financial vehicle that you are probably familiar. CD is usually earned slightly higher returns than savings accounts, but interest rates still very low compared with the rate of inflation. In addition, when you put money on the CD Usually you can not withdraw it without penalty until the CD matures.

Bonds are another popular place that people invest their money. With bonds, the yield depends on the risk. Short-term and government bonds, are generally considered less risky, and therefore tend to have lower returns. On the other hand, long-term and corporate bonds typically carry higher risk and, therefore, tend to have higher returns. In general, bond returns are generally higher than both CDs and savings accounts, but the gap between bond yields and the average inflation rate is still relatively small.

The stock market is often mistakenly considered the most risky place to invest money. While it is true that stock prices change in the short term, and sometimes general, if you look at the long-term profitability of the stock market compared with other investment instruments, the stock market consistently and convenient surpassed all other previously described investment instruments.

Depending on the source, check, long-term real return on the securities market range from 8 to 10 percent. For comparison, according to Charles Schwab, the average long-term return on bonds is 3.6 percent. Return on CDs and money market accounts can vary from 2 to 4 percent in the long term.

In addition to the above long-term profitability, individual stocks up almost unlimited potential, while bonds and other types of investments we have discussed, do not have this type of building. Shares can go from $ 20 per share to $ 40 for a few days or weeks, if conditions.

In addition, if you invest in the average mutual fund shares or index fund, your long-term profitability could be around the overall average of the stock market of 8-10 per cent. However, if you can train to make its own study of the composition and weed out inefficient and poorly run companies, you do not think that this may even be possible to earn even more than 8-10 percent of the market average in the long run?

Let’s briefly go on a short example to illustrate the difference between investing in shares and other lower yielding financial instruments. If I invest $ 10,000 today, in 2009, and earn an average of 8 per cent a modest rate of return on the stock market after 30 years I will have about $ 93000. If I only earn 3 percent return by investing in a money market fund or a CD, I will only result in about $ 23,565 after 30 years. Quite a big difference between these two scenarios, is not it?

If you also consider the long-term rate of inflation at 3.42 per cent (according to Inflationdata.com), your initial $ 10,000 would be equivalent to about $ 26369 in the time you retire. Simply put, a car that costs $ 10,000 today will cost about $ 26,369 in 2039. This means that in real terms, if you had invested in an account that has only 3%, you would, for all practical purposes, you must have lost money on the initial investment. In other words, after 30 years you could not afford to buy the same car in 2039, that you would have been able to buy the original $ 10,000 in 2009.

Economic downturns, like the one in which we are now, may be one of the best times to start investing in stocks. If you had invested in the stock market when the Dow hit its low in 6000 just at the beginning of this year, you would have earned nearly 50 percent return on investment in the coming months. Or, if you had invested in the Dow Jones in April 1932, at the lowest point stock market crash during the Great Depression, in a simple 3-years your investment will be no more than twice, and will have more than four times within 5 years. Although it may be very difficult to time the market is right, being a methodical and investing gradually over time can lead to big profits in the long term.

In conclusion, investing in stocks can be very profitable proposition. In the long run, you probably make much more money, and actually minimize the risk, because you probably get a higher average income than most other popular investment vehicles. If you’re still unsure, test the water by investing small sums of money in several blue-chip “dividend paying stock or index fund. Twenty or thirty years, you’ll be happy that you made this decision.
learn forex trading forex trading strategies forex secret trading