How do I take the Scare out of Stocks?

Last Updated on March 3, 2020

The stock market always seemed to be a mystery, given all the figures and finance jargon – stocks, dividends, EPS, PE etc. The changing economy, the risk factor all made me take a back seat when it came to investing my money. ‘Leave it to the experts!’ I thought.

Planning a trip with a friend turned into an eye opener. We were both 30 something year old women, with similar jobs and salaries, yet there seemed a huge disparity in the quality of life. Turns out that where I had spent my time scrimping and saving and praying to buy the flat-screen TV I’d been eyeing, she’d been sensibly investing in the stock market.

She already had the TV, the five star lunches and a nest egg safely tucked away. That’s what got me thinking:

Stocks vs. Savings –Why even turn to it?

Saving your money in a bank with its fixed rate of returns may sound a safe option. At the end of the day though, unlike with stocks, your returns are always affected by inflation.

When you buy a share you’re investing your money into a company. Over the long – term, as the business grows and earns profits, so do your earnings. Relying on the company’s performance may sound a bit daunting, but there are in fact some benefits:

• The stock market is easy to monitor: Company’s financials are generally transparent and we have a huge amount of information available. You can log into the market from anywhere and at any time.
• Tax Advantages: Long term capital gains from stocks are tax free if shares are sold through the stock exchange and Securities Transaction Tax is paid on the sale.
• You can buy or sell your shares immediately and at any time: Maximising returns whilst spreading your risk is the beauty of trading.The moment you feel that your stocks have entered a risk zone, you can opt out of your share holdings.

Investing in Stocks – Is it always a gamble?

The stock market is the best way to beat inflation and increase your money over time. Even when the economy is down, you don’t actually lose anything unless you sell your shares.

The market works on certain principles. If you educate yourself on the basics, play it safe and invest for the long term, you reduce the risk of stock trading.

Top Tips – Before you start investing:

• Don’t be intimidated by the stock market: Every single broker, analyst or stocks wizard started with the basics, learning as they went along. You don’t need an education in finance or a bunch of numbers stacked in front of you to figure it out. Arming yourself with a bit of information is all you need to get started.
• Know the company: When you buy a share, you are in fact buying a tiny piece of a company. You wouldn’t buy a brand new product without some research and feedback, so the same should hold true for the company you are investing in. A track record of the company’s financials along with some understanding of its reputation and management are the key factors to keep in mind.
• Keep up to date on the economy: The constant fluctuation of the economy and therefore of the stock market is what determines whether you make a profit or loss. Knowing when to buy and sell your shares is an important element. It’s like tossing out the flyer for a sale at your favourite store. You show up there 2 days after the sale and you end up paying more.
• Don’t put all your eggs in one basket: Investing your money in a variety of stocks is far more sensible than sticking to just one or two. In that way you limit the risk of being affected by a plummeting stock.
• Weather the storm: During times of market turbulence, it’s best to just stick it through. The economy is always changing and the slumps have always been followed by waves. The longer your money stays invested, the less the risk, the greater the returns.

Now, the stock market doesn’t seem so scary. If you buy into a great company, pay as little as possible and leave it aside as long as you can, you are bound to make some profits.

I learned that in no time and today I just let my flat-screen TV do the talking!

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