The stock market is just one of many places where you can invest your money. Other investment options people commonly use are bonds, savings accounts, money market accounts, treasury bills, gold, silver, and I am sure there are many more. Every one of those investment vehicles has a different level of risk and which one(s) you use should depend on your individual situation and goals.
Investing in the stock market over the long term has, for many years, been recommended by experts as the place you can get the greatest return. Take note that this is over the long term only as it is agreed that stocks can be very risky if you have a short investment time horizon. We have all seen first hand evidence of this as the market started going down steeply in 2007 and didn't rebound until the beginning of 2009. Many people lost a lot of money during that time and many lives were changed for the worse.
Here in 2010, if you want to invest your money safely with little risk you will not be able to make much more than 1%. Interest rates are very low and they pretty much have nowhere to go but up from here. However, there is no indication when things will begin to change as there is financial turmoil across the country. It is likely that interest rates will remain low all this year.
Bank certificate of deposites (CD's) and treasury bills are the two most common ways to invest the money you have sitting around that you want to earn interest on. Savings accounts and money market accounts also pay interest buy usually a lower percentage. You can also buy bonds and sometimes do better with those.
Gold and silver have done very well in the last dozen years or so. People buy these metals for different reasons: some buy them as investments and others buy them as a form of insurance. Both gold and silver are thought to be hedges against uncertainty and thus a form of insurance during difficult times such as we are having now. People who buy them with insurance in mind do not care too much whether they go up in value and are hoping they can just retain their value. Gold and silver have never gone to zero in value and most likely never will.
Other people like to buy these metals for investments in hopes that they will keep going up in value. Anyone who has invested in either silver or gold in the last 5 years have done very well as they are both near their historical highs.
The stock market is the place where most people invest their money with the hopes of making the most in return. The stock market has historically outperformed all other forms of investments when looked at on a long term chart. However, you should never invest money in stocks that you know you will need soon.
You can make money in the stock market by buying stocks of individual companies yourself through a stock broker or you can buy baskets of stocks known as funds that are managed by a professional. Choosing which stocks to buy and then figuring out when to sell them is something that can take a lifetime to master. For this reason, many people favor and recommend you buy funds so that someone who is qualified can make the decisions. There is a fee for most funds though, and that is another expense that you have take into account.
You will owe taxes on any money you make from any of your investments. Whether you make interest income, dividend income, or profit from the sale of stocks you will owe taxes on that money to the United States government. If you make in the thousands of dollars this may require you to send in money on a quarterly basis otherwise you will incur late charges that can be quite steep. The US governement (and all governments) always want their share of any money you make.
If you feel you are in the "investing for dummies" category, note that learning how to manage money is not something that is learned overnight. It takes time to learn what all your options are and what risks you feel comfortable taking. It is important that you take only the amount of risk that allows you to sleep well at night. Your money is hard earned and if you don't feel comfortable taking risks to try to get bigger returns, that is OK. Investing is a personal issue and there is no formula that is right for everyone.
INVESTING FOR DUMMIES - AN OVERVIEW
ARE PENNY STOCKS FOR DUMMIES?
8/11/2010 Update: While I think penny stocks are risky, they continue to be of interest to many investors. I have found this Penny Stocks VIP newsletter that is 100% FREE to sign up for. All you have to do is enter your email and then click on the "confirm email" link when they email you. You will then be set up to receive their free VIP newsletter.
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For years, people have been fascinated with penny stocks and the idea of making money by investing in them. One reason is that because they are so low in price, anyone can afford them. But are penny stocks a real investment opportunity you should be looking at or is it one you should never get involved with?
There are many definitions of what constitutes a penny stock. Some people consider every stock that is under $3.00 to be one while others make the cutoff at $1.00. No matter what you deem to be a "penny stock" the important thing is that it costs very little for a reason.
Some people believe that all stocks start out as penny stocks and grow from there. They might get this ideas because of the stats on some stocks which include all the different times a stock has split. Big stocks like Microsoft may have split so many times that after that has been factored in, it looks like the stock was originally offered for just pennies or a few dollars. Seasoned investors know, however, that Microsft and other high fliers like it were never offered for such low prices and the opening cost was much higher. The adjusted stock price is something you should understand before you make incorrect conclusions.
There are several things that make penny stocks much riskier than other higher priced stocks. One of the things is that in most cases, stocks that only cost pennies or a dollar or two are that way for a reason. When you get down to such low valuations, there is usually a reason why they don't cost more and that reason is never a good one. This makes most penny stocks very risky to buy but they continue to get interest from beginners and certain sectors of the market because of the "potential" upside.
Something that is the case with many penny stocks is a lack of history and information. They are often listed on "pink sheets" and anything there is not required to file with the SEC. This means you will be buying penny stocks without the usual scrutinization and regulation that is associated with regular stocks on the NYSE and Nasdaq. Of course even with regulation, things can go very wrong with any stock you buy as evidenced in recent years by stocks such as Enron that have gone bankrupt and lost investors millions. However, buying penny stocks can mean taking an unnecessary risk on something you know very little about. That is truly the stock market for dummies you might say.
Another problem with buying penny stocks for beginners is that with any stock priced so low, there is a lack of liquidity. This means that you may have trouble selling your stock because there are not enough buyers. Penny stocks are something that you should really understand before you get into them and you should only do it with money you have to lose. Too often, young investors who don't have much money choose to take shots at penny stocks just because they are cheap and they hope to find the next Dell or Google and end up losing their money.
For years, people have been fascinated with penny stocks and the idea of making money by investing in them. One reason is that because they are so low in price, anyone can afford them. But are penny stocks a real investment opportunity you should be looking at or is it one you should never get involved with?
There are many definitions of what constitutes a penny stock. Some people consider every stock that is under $3.00 to be one while others make the cutoff at $1.00. No matter what you deem to be a "penny stock" the important thing is that it costs very little for a reason.
Some people believe that all stocks start out as penny stocks and grow from there. They might get this ideas because of the stats on some stocks which include all the different times a stock has split. Big stocks like Microsoft may have split so many times that after that has been factored in, it looks like the stock was originally offered for just pennies or a few dollars. Seasoned investors know, however, that Microsft and other high fliers like it were never offered for such low prices and the opening cost was much higher. The adjusted stock price is something you should understand before you make incorrect conclusions.
There are several things that make penny stocks much riskier than other higher priced stocks. One of the things is that in most cases, stocks that only cost pennies or a dollar or two are that way for a reason. When you get down to such low valuations, there is usually a reason why they don't cost more and that reason is never a good one. This makes most penny stocks very risky to buy but they continue to get interest from beginners and certain sectors of the market because of the "potential" upside.
Something that is the case with many penny stocks is a lack of history and information. They are often listed on "pink sheets" and anything there is not required to file with the SEC. This means you will be buying penny stocks without the usual scrutinization and regulation that is associated with regular stocks on the NYSE and Nasdaq. Of course even with regulation, things can go very wrong with any stock you buy as evidenced in recent years by stocks such as Enron that have gone bankrupt and lost investors millions. However, buying penny stocks can mean taking an unnecessary risk on something you know very little about. That is truly the stock market for dummies you might say.
Another problem with buying penny stocks for beginners is that with any stock priced so low, there is a lack of liquidity. This means that you may have trouble selling your stock because there are not enough buyers. Penny stocks are something that you should really understand before you get into them and you should only do it with money you have to lose. Too often, young investors who don't have much money choose to take shots at penny stocks just because they are cheap and they hope to find the next Dell or Google and end up losing their money.
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