Is Investing in the Stock Market Risky?

The stock market, a market that allows investors to buy shares of a business, has a bad reputation as being risky. This has some truth, but it is not the entire picture.

Penny Stocks

Probably the riskiest type of stocks an investor can purchase. Penny stocks are stocks that are valued at less than $1. Any stock less than one dollar is going to be a speculative investment.

A lot of people will buy penny stocks to engage in day trading. Buying and selling a stock or other security within the same trading day, making it the most active type of way to invest in stocks. Day traders profit off of small movements in price and need to maintain an account balance of $25,000 to be legally considered a pattern day trader.

Day traders will mainly use what is known as “technical analysis” to analyze a stock and predict if it is going to go up or down. Trading a stock within the same day is as risky as the trader makes it. Some profit big and are able to trade full time, others lose nearly all of the money they initially invested.

Buying Stocks Long-Term

The most common way people profit off the stock market is investing in reputable stocks that pay a quarterly increasing dividend. Dividends and capital gains are the two ways that people holding assets will continue to grow their account balance.

Many people do not know what to invest in for the long-term, but a good start is to use a low-cost S&P 500 index fund, like the one that Stash or Vanguard provide. This will instantly diversify your portfolio into 500 different reputable companies. You’ll earn on average about 7-10% a year, making it one of the least risky ways to invest in stocks. The dividends could possibly become another income stream for you!

Stash allows you to buy fractional shares, making it an easy way to start if you do not have access to a lot of money.

Is Not Being in the Market More Risky?

A lot of people do not realize not investing in the stock market is riskier than investing in it.

Here is a chart of the US dollar’s purchasing power over time:

Image result for US dollar purchasing power over time

If you are not consistently trying to make more money with the money you already have, you’ll money over time. Savings accounts are popular ways to get interested in the money you already have, but the interest rates are insulting. Therefore, you will receive at best 2%, most likely less than 1% per year. Do you really want $1-$2 for every $100 invested?

The stock market is clearly a better option for a long-term investment portfolio. This is not to say to invest all of your money into the stock market. Some of your money should be consistently growing and compounding especially if you are younger.

Now ask yourself, what do you think is riskier? Investing in stocks or letting your money depreciate over time?

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