If you are afraid of investing in the stock market, I tell you that you are not the only one. Market volatility, swings, macroeconomic risks, and uncertainty are all things that scare a lot of investors.
Still, it is the wrong approach. Not only should you not be afraid of investing in the stock market, but the latter is one of your greatest allies.
This is why investing in the stock market is an opportunity and not a risk
Let me tell you something right now:
“If you avoid the biggest mistakes, the stock market will not make you lose money in the long term“
What are these mistakes? Well, I’ve talked about it often, but let me recap the most important ones:
- Low diversification: If your portfolio is concentrated in a few stocks or a few geographic areas, you will be subjected to significant risk specific to these stocks. With greater diversification, this risk is reduced.
- Too much leverage: excessive and incorrect use of derivatives such as futures and options without having the necessary expertise can lead you to ruin
- Too many commissions, due to the fact of using inefficient products
- Too much trading and the absence of a long term program
- Lack of patience.
These are the main mistakes. If you avoid them, investing in the stock market will not hurt your finances, but on the contrary, it will be a way to increase your capital year after year.
In the long run, well-diversified indices such as the MSCI World or even the S & P500 have always grown, paying off well for investors. This is not to say that they have performed well every week, every month or every year. Sometimes, when large losses occur, it can take up to five years or more to recover, but eventually, the profits come.
Over the long term, there is no other investment in the financial markets, be it bonds, cash products, commodities or precious metals, that have had similar returns to equity. The only investment that is partially close to equity returns is real estate, but even in this case, there are risks and problems of no small importance (think about how a defaulting tenant or condominium disputes or with neighbours can reduce the yield).
By investing in the best stocks, you can become a partner in a business and with diversified ETFs, you can become a partner in even the most important and well-managed businesses in the world. Think about how many people invest in businesses such as restaurants, shops, bars or other businesses each year. Most of these small businesses fail in the first 3 years.
But by investing in the stock market, you can become a partner in companies managed by competent managers, with solid competitive positions and ample financial resources.
Do you understand now why investing in the stock market is an opportunity and not a risk? Avoid the most important risks and be patient! If you follow these simple tips, the bag will certainly not ruin you, but on the contrary, it will give you great satisfaction!