Editor’s note: This article was first published in July 2010, and its figure of fixed-term bank deposits paying 3.50% to 4.5% is from that year.
There are still many myths about investing in the stock market. We’ll look at them and reach conclusions that clearly show that, to this day, the stock market is the most profitable investment once you have acquired some basic knowledge.
Even during the housing bubble, investing in the stock market was far more profitable than investing in real estate. These are some of the myths we’ll explain:
- You need a lot of money to invest in the stock market, or it’s only for the rich: Not at all. You don’t need €50,000 or even €25,000 to get into the market. You can start with just €100, although it’s also true that if the amount you start with is too small and your return is low, your gains can be eaten up by commissions. Even so, you can start with whatever money you want.
- I could lose everything and be ruined: True, but badly framed. The most money you can lose is the money you invest. So if you follow the advice any expert will give you (invest money you won’t need), you won’t be in danger of going broke. You’ve probably heard of people or companies that were ruined by the stock market. That isn’t entirely accurate either. Some people have been ruined simply because they took out a bank loan to invest: even if their trades made a profit, it wasn’t the profit they had hoped for, and they still owed the bank money, and as we all know, banks seize assets. As a rule, with long-term investments, share prices may rise or fall from day to day, but over time they tend to stabilize. The only way you can lose all the money you invested is if the company you invested in goes completely bankrupt.
- The stock market is like gambling: No, the stock market is a game in which you need to know the numbers. A gambler plays with chance; an investor plays with knowledge. Great fortunes have been made above all through stock market investing. Obviously, if you don’t gain experience, it will always be a game of chance for you, but professional investors rarely have a year in which they have to report losses. Robert Kiyosaki talked about the 7 levels of investors and types of investment.
Now that we’ve debunked some myths about the stock market that aren’t entirely true, let’s move on to the advantages of investing through this vehicle.
1. Returns
As we’ve said, the stock market is the most profitable investment once you accept the risks. A bank fixed-term deposit might offer you a return of between 3.50% and 4.5%. It’s true that fixed-term deposits are what we call safe investments, which is why they pay less. Stock market returns can be 10%, 15% or even, in some cases, 150%, but never forget that you are taking risks.
2. Diversification
The stock market lets you diversify both your risk and your investments, since you can buy shares in several companies at the same time. That way, even if one investment loses money, you can offset it with the gains from another, more successful one. You also have the opportunity to invest in companies and stock exchanges in other countries.
3. Liquidity
Whenever you need your money, you can have it, with the advantage of being able to sell at any time the shares you think won’t be profitable for you. This is one of the biggest advantages of investing in the stock market. There are no penalties for withdrawing your money or selling your shares early. And to receive dividends, you don’t have to do anything except instruct that they be paid into the account of your choice.
4. Tracking
You can follow every movement of your money and the value of your shares on many online platforms. You’ll always know whether your shares have gone up or down and, of course, as we said in the previous section, you can buy or sell in a matter of seconds.
As for disadvantages, we’ll mention only one: being an investor is a career like any other, and it requires something so many people find hard to do: read, and keep up with financial and economic news.
In a previous article we suggested two steps to get you started in the world of investing. They are just that: steps to take before investing, not a signal to start investing.
See also: 7 stock market questions we answer for investors
Featured image: Carol M. Highsmith, Public domain, via Wikimedia Commons.
