Are you an Investor or a Speculator?
- By:
- Anders Bylund | October 01, 2007
Are you a gambler or an investor? Believe it or not-you can be active in the stock market without losing sleep.
It's been said that if you want to get rich, you must invest your money. Stuffing dollar bills into your mattress just doesn't count. Many people resist investing, though, because they think it's a type of gambling. But there are ways to reduce your market risk, so that you can get rich and sleep at night.
The stock market is stressful, right? You've seen the brokers on the NYSE floor developing ulcers by the minute, and day traders chained to their computers from the opening bell to market close. But investing doesn't have to look like that. Two things set you apart from the stereotypical Wall Street professional: patience and diversification.
Your first advantage is that you have a long-term investing horizon. Day traders act on minute-to-minute price moves, winning or losing large amounts of money in mere moments. That's a high-stakes game with more losers than winners. You, on the other hand, are probably saving for retirement.
That saves you untold headaches and trading commissions, and lets you focus on living your life, instead of hanging onto every moment of the CNBC ticker tape. Numerous studies have shown that you're better off holding your investments for many years rather than moving your money in and out of the market daily.
You also have the ability to build a balanced and diversified portfolio rather than pulling out your hair over one or two stocks. The price of any stock can change dramatically over the short term. That's great when they go up, but not when they go down. A larger basket of companies hedge against those swings and can help ensure slow-and-steady gains over the months, years, and decades. You can do this yourself by picking high-quality stocks from various industries, of varying sizes, and with different geographical exposures.
If you don't have the time or interest to follow individual stocks, you can invest through mutual funds. They are large baskets of stocks, picked by professional money managers, and repackaged into a single tradable asset. All you need to do is pick a type of fund: large-cap, small-cap, growth, value, emerging markets, etc. There are probably a few hundred mutual funds catering to every approach.
If you can't decide, and are happy matching the returns of the stock market as a whole, purchase an index fund. These are designed to track major market indexes like the S&P 500, the Dow Jones Industrials, or even the entire American stock market, all in one place.
Pick your investments and let them percolate. If you properly diversify, you can forget about it for weeks or months at a time, and only check in to rebalance once or twice a year. Your wealth is safe and growing, and you're getting a good night's sleep. That's not gambling…that's investing.
It's been said that if you want to get rich, you must invest your money. Stuffing dollar bills into your mattress just doesn't count. Many people resist investing, though, because they think it's a type of gambling. But there are ways to reduce your market risk, so that you can get rich and sleep at night.
Too risky, too intense
The stock market is stressful, right? You've seen the brokers on the NYSE floor developing ulcers by the minute, and day traders chained to their computers from the opening bell to market close. But investing doesn't have to look like that. Two things set you apart from the stereotypical Wall Street professional: patience and diversification.
Your first advantage is that you have a long-term investing horizon. Day traders act on minute-to-minute price moves, winning or losing large amounts of money in mere moments. That's a high-stakes game with more losers than winners. You, on the other hand, are probably saving for retirement.
That saves you untold headaches and trading commissions, and lets you focus on living your life, instead of hanging onto every moment of the CNBC ticker tape. Numerous studies have shown that you're better off holding your investments for many years rather than moving your money in and out of the market daily.
Diversification brings sanity
You also have the ability to build a balanced and diversified portfolio rather than pulling out your hair over one or two stocks. The price of any stock can change dramatically over the short term. That's great when they go up, but not when they go down. A larger basket of companies hedge against those swings and can help ensure slow-and-steady gains over the months, years, and decades. You can do this yourself by picking high-quality stocks from various industries, of varying sizes, and with different geographical exposures.
If you don't have the time or interest to follow individual stocks, you can invest through mutual funds. They are large baskets of stocks, picked by professional money managers, and repackaged into a single tradable asset. All you need to do is pick a type of fund: large-cap, small-cap, growth, value, emerging markets, etc. There are probably a few hundred mutual funds catering to every approach.
If you can't decide, and are happy matching the returns of the stock market as a whole, purchase an index fund. These are designed to track major market indexes like the S&P 500, the Dow Jones Industrials, or even the entire American stock market, all in one place.
Get some rest
Pick your investments and let them percolate. If you properly diversify, you can forget about it for weeks or months at a time, and only check in to rebalance once or twice a year. Your wealth is safe and growing, and you're getting a good night's sleep. That's not gambling…that's investing.
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