wealtharticles-are_stocks

Are Stocks Risky?

If you have never invested in a single stock before or if you ever had been burned by a bad investment in stocks before, you will have this perception that stocks are risky investment instruments.

I agree with you in this case. Because you have learned either from a bad experience or you may have heard of someone getting burned in stocks. In this regards, you are right. Stocks are risky.

Then again, have you ever thought, where are you going grow your money fast enough or where are you going to put your money so that it can work harder for you.

You see, we spend our life-time making money and most of us have neglected the most important thing in wealth accumulation and that is making your money work harder for you.

Let us explore some other options available to you if you were to view stocks as risky investment instruments.

Insurances have hardly made good returns on their investments. If you have bought a participating in bonus or profits kind of insurance plans, you will probably be receiving bad news on your profits this 2 years. During good years you can probably get a return between 5% to 8% per annum. But it is those down years that is going to concern you. And going by the economic status of the world today, we are likely to experience some kind of economic recession or slow-down once every 3 to 5 years.

With this in mind, insurance is hardly a positive alternative for your investment returns.

Bank deposits. Forget about deposits. It is virtually non-existence when it comes to giving you a reasonable returns. And the interest rates bank deposits are giving you today, you will probably be losing it to inflation altogether. It is best used for emergency funds, period.

Bonds use to be safe until the global financial crisis in September 2008. With the credit crunch, bonds have not been safe havens to go into when the stock market falls. In fact, bonds have shown in the last few months after the credit crunch that they are also suseptible to defaults in bond payment.

Though it is still considered safe, its returns are still subjective and are longer term holding period usually.

Unit Trust. Let's be honest, the buy and hold strategy does not work in today's investment environment. As economic cycles are shorten, a recession will likely to happen in the world once every 3 to 5 years.

The strategy one should adopt is re-balancing of their investment portfolio. But to be honest, how many of us do that. Even our financial advisers and relationship managers fail to do that for us.

Stocks are only considered risky because people invest just base on herd mentality. Example would be a lunch with an old friend and the subject went to him buying some stocks and made some good money. You got some tips from him and call your long lost broker to place a trade only to realised in a weeks time, you investment went down 10%.

That is the whole problem of the average stock punters on the street. They rely on poor advice from rumours rather than paying attention to stock investment education and learning the trade.

Successful stock investors learned, study and research on which stocks to buy. Investors such as Warren Buffett, George Soros and even Oei Hong Leong learned how to invest in stocks. They view education is more important than just plain investing.

My advice would be to start your stock knowledge as soon as possible. When you have gotten the relevant knowledge, you then need to put your knowledge into action, then only then will you experience the real thing.

In fact the correct mentality should be to manage the risk. If you are able to manage risk, whatever the risk factor presents, you are able to counter them.

So to answer the question, "Are Stocks Risky?". Yes they are only if you (1) did not spend time educating yourself on it. (2) did not manage your risk properly. Get this 2 things done first and you are on your way to being a smart investor.

Calvin Yeo, CFP, MBA, CPT
Wealth & Financial Coach. www.TheWheelofWealth.com. Calvin is also a speaker and trainer in the area of Wealth and Financial matters. With 17 years of experience in the financial industry, he is also an expert in Entrepreneurship and Business Strategies and is about to publish a book call, "Death of Sales". You can visit it at www.DeathofSales.com.