Although I love the stock market and would like everyone to love it too, the stock market is not for everyone. I’ve learned that for some people owning stocks will not bring them happiness. Nor is it always the best financial investment, depending on your personal circumstances.
It’s exciting to see the market climbing up and up. And tempting to be part of the action — and all the oodles of money being made. But when the market starts dropping, not everyone enjoys that part of the roller-coaster ride.
Reasons to stay out of the stock market
If you have a lot of extra money to play with, or don’t need your money right away, the market can be a good place to watch your money grow. But, as I said, it’s not the right place for everyone.
In fact, for many people being in the market can add a lot of stress to their lives. Now that doesn’t mean you should NOT invest in stocks, but you at least need to know what you’re getting into.
Here are some things you might want to think about BEFORE investing:
Retirement age –– If you’re already retired or close to retirement age, you need to fully grasp the volatility (up and down) of the market. And that when the market goes down, it does not ask first “are you going to need your money soon?” It just drops. And stays down for however long it takes.
If you are going to need money soon, it shouldn’t be in stocks. It should be in something more “liquid”, meaning it holds its value. And you can get to it easily, like CDs (some interest loss) or high-interest savings.
BUT … when you retire you don’t need all the money at once. So, if you have enough money to give you some wiggle room, stocks are great investments for money you will need down the road. And, as you get closer to needing it, you can rethink stocks at that time. Just don’t leave it to the last minute, or you may have to sell during a downturn.
Money is tight — People see all the money being made, hand over fist full of dollars. And they think “Why not me?” But you simply cannot count on any one stock or group of stocks going up. And there is always a chance they will go down — way down. So as appealing as the stock market casino may be, you are gambling with money you need now. A huge risk.
You would be better off taking any extra money and finding the highest rate CD or savings account. I know that those options are not as exciting as the thought of making millions in some high-flying stock. But in reality, the odds of that are extremely slim. And for people who don’t have much (and can’t afford to lose), stocks are probably not going to make you rich.
If you’re looking to take a chance, investing in yourself might be a great alternative. Learning a new skill(s) that can help you earn more. Or starting your own part-time business that you can grow slowly — no matter what the market is doing.
You get nervous easily — Watching markets go down can cause anyone anxiety. So just being a nervous person doesn’t mean you shouldn’t own stocks. But you need to be able to learn to ride out the lows and maybe not get too excited about the highs. Until you sell, the profit (or loss) is just on paper and may disappear at any time.
But there are people just not cut out to own stocks comfortably. They sweat at every downturn. And they rush to sell. No matter how vigorously you try to explain they are locking in a loss by doing that. They even don’t feel comforted by graphs showing long-term gains if you just wait calmly.
More on that here:
⇒ How To Handle a Stock Market Downturn
A down market will come up again — we just can’t for sure know when. But there is no reason to invest in something that will keep you in a state of anxiety, no matter what everyone else is doing.
What if you want out of stocks you own?
So let’s say you already have stocks. And now you’re thinking that maybe they are not your best investment choice. That’s ok. There are plenty of other things you can invest in.
Just don’t rush to sell when the market starts heading down. Wait to realign your portfolio once things head up again. And maybe simply having less in stocks and more in individual quality bonds and CDs, etc. (diversification) can help ease any pain.
⇒ EXTRA: Portfolio Theory: Why Diversified Investing Is Important
By the way … quality stock funds (look for “no load” in and out) are a type of diversification. And owning different types of stock funds helps you diversify (spread out the risk) even further.
What about high dividend stocks?
I actually like owning some high-quality stocks that pay good dividends. But you can’t put all your nest egg in one stock basket. Or even two stocks. As we saw recently with GE, even companies we assume are safe can get hit hard. So again, remember to diversify.
If you want some high dividend stocks — or funds that aggregate them for you — great. You earn dividends even if the market goes down. Just make sure you have enough other investments to balance out your portfolio, in case the unthinkable happens.
A few more articles to help
Stock Basics: I Want To Learn To Buy Stocks for Myself
What You Need To Know About Stocks
A Simple Guide To Bonds & Bond Terms
Comments & questions welcome!