This is reality when dealing with stocks or making any type of investment, you can potentially take a loss. The question will always be asked is the stock market safe? Since there are different type of investors and traders, the answer will always vary. With different type of investment strategies, the answer will differ. Therefore, your investment strategy and determining type of risk you are willing to take will help you better answer if the stock market is safe.
Investment strategy is very important if you are attempting to do all the heavy lifting portion of investing. The heavy-lifting is taking time do proper research of the companies before you invest. A good strategy will not prevent you from losing money, but it should limit your losses over time. Okay, there are probably many NFL Fans who invest; therefore, in the simplest terms, the stock market is the playing field, if the field is not up to your ideal conditions for your team(portfolio)to execute your gameplan(investment strategy) you do not have to play or invest.
Therefore, if you feel that your investment strategy will suffer during the market, then it would be safe to say the market is not safe for you to invest. You could definitely change your investment strategy to help improve it chances at success. There are times when you will not invest anything and the stock market on whole may be down and you may feel it is too risky. Stock market can be unkind but its’ safety is really dependent upon what type of strategy you are using to get your returns.
Below learn more about the safety of the stock market.
I know everyone has heard the saying high risk equals high rewards when investing stocks; however, it is never fun to take on too much risk; therefore, I will present a method that is a stable with anyone who does not want to lose their shirt when investing.
The risk/reward ratio will give everyone a tool to use when he or she is deciding what or when to invest. The risk/reward ratio will vary due in part of the investing strategy the investor may use. An example of the risk/reward ratio is found below:
XYZ is trading at 20.00
If the investor expects a share of XYZ to rise and he or she has determined it would be a gain = 10.00 dollars
The worst case scenario the investor is only willing to accept a XYZ to drop or lose = 2.00
The risk/reward ratio for the example would be 2:10 or 1:5
The use of the ratio can help determine if a stock is worth the amount of money he or she plans to invest to make the profit he or she predetermined.
The risk/reward ratio should not be only piece of information used when investing in the stock market. Investors should always research and make sure he or she get the information needed to make an informed decision.
I know everyone may have heard or read about the Standard & Poor’s 500 or S&P 500. For beginning investors, it can help determine how a lot about certain stocks. It is not difficult at all to understand and today I will provide a brief overview of what the S&P 500 is and how it can help the investor.
S&P 500 is an index of 500 companies that is provides larger representation of most type of stocks that are traded in the stock market. The 500 companies are large cap companies. It will allow an investor to get an idea of the risk and rewards that would exist for large cap companies. It uses weighted average market capitalization to indicate how much of an effect the company has on the S&P 500. When market cap of each company is added to together and then the percentage of the market cap of that particular company is used to show how much of influence it had in determining the overall average of the S&P 500. The larger companies have the most influence on the index.
It only uses American companies and the companies that are a part of the index is picked by a committee. S&P 500 will indicate to the investor the way a market maybe moving because of volume all the companies generate. If the index is down it usually means stocks are down and vice versa. Index is 70% of the value of the U.S. stock markets.
S&P 500 is not the only index that you may hear about they are indexes that represent small cap companies and they are indexes such as the Dow Jones which use fewer companies in their index. They are all reflection of portion of the market. They can act as quick reference of what the market is doing. Standard & Poor’s 500 is an index that will remain popular with the investor; therefore, take what you learn from it and use it to your advantage and make money work hard for you.