Who should invest and who should trade in the stock market?
The short answer is … anybody who wishes to be in charge of the own financial destiny!
As one of my favorite authors (Zig Ziglar) says “Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the “gotta have it” scale.” In my opinion, money is a catalyst that helps makes our dreams possible … so, no matter what your dreams and goals are, whether personal, philanthropic or altruistic, money can help make them a reality, and we should claim the power to create it for ourselves.
So, the logical question is … if money is important and investing and trading can help one get money – who should invest? And who should trade?
WHO SHOULD INVEST?
The short answer is … everyone should invest. Even if you chose to have someone else manage your money for you, knowing how to invest will help you pick the right financial advisor to achieve financial goals quickly and safely. Different financial advisors may have different knowledge of the various financial instruments, some which may be more risky than others.
The simplest solution for the ‘lazy investor’ is to invest at regular intervals in a mixture of funds that have a balance of risk and reward that matches his or her ‘risk tolerance’ and long-term goals. Periodic re-balancing of this basket of funds may be necessary to maintain the right balance of large cap, mid-cap, small cap funds, as well as domestic and foreign stock exposure. To learn more about this style of investing read The Lies about Money by Ric Edelman.
Some investors prefer to pick stocks of ‘good’ companies in the hope that the stock price will increase in time and they will make money. Learning how to identify companies with good fundamentals and earnings potential takes time and effort, and never a guarantee that the company will do well in the future. To guard against losses, smart investors like Warren Buffet use stock options strategies like puts or collars as part of their portfolio.
WHO SHOULD TRADE?
Individuals who desire a more active role in the market and aspire to greater riches should learn how to trade. In fact, all investors who desire to augment their investment returns may wish to consider trading with a small portion of their portfolio set aside for ‘risky’ strategies. When compared to a mere couple of decades ago, trading has become extremely accessible to virtually everyone. Some of the more popular financial instruments to trade include stocks, stock options, futures, and forex. The types of trading strategies undertaken will be different for different people depending on the amount of money they wish to put into the market, but the possibilities are endless.
For those brave enough (or foolish enough) to embark on this journey, the road is fraught with dangers, and ‘Mr. Market’ is quite happy to take your money to give you an education. Virtually everyone who is now an accomplished trader has ‘paid his dues’ to ‘Mr. Market’ for some very costly lessons. But, there are ways to minimize the pain. One way is to begin with paper trading before putting real money at risk, and later risk only small amounts of money while learning how to trade. Another way is to learn options trading strategies that can help limit losses yet preserve the potential for profit. To learn more about trading, read The Stock Market Game and Winning Trading Strategies.