On nasty days like today, when almost EVERY stock in the market is down (because of economic worries in Europe), people have got to wonder why are they even invested in something that can lose them money? Money btw, that you've worked hard to save and put away for retirement or some other event/thing down the road...
The answer to the question "why", I believe, comes down to the idea that if you buy something today, then at some point in the future you will be able to sell what you bought and make money on that "purchase". Lets not focus on the stock market, lets look at real estate instead. Back when the housing market was booming, every one wanted to buy houses because they seemed like a "good investment" and because of that, one day the individual who bought the house would be able to sell it to someone else for more than they bought it for...consequently making money.
Now fast forward to the housing market today. The majority of the houses that were bought over the past 5 years are worth less than what they were paid for. That being said, most people understand that EVENTUALLY, the house will in fact be worth more than they paid for it and they will make money on the purchase of it. This is the exact same thing that goes on in the stock market. Like houses, people buy stock (invest in stock) because they "hope" that one day the stock that they bought for "x" will be worth more than "x" and they will be able to sell it and make a profit. The problem with the stock market is that people don't equate buying and owning stocks in the same way that they do say a house. BUT, I would argue that the two are extremely similar in that both are bought with the idea that at some point in the future, both will be worth more than what they were paid for. Another problem with buying stocks, and the stock market in general, is that because stocks are bought and sold on a daily (second by second) basis, that the ups and downs are RIGHT THERE IN OUR FACES. When I cut on the tv to watch the business channel CNBC, and I see that things in Europe are bad or that our politicians are bickering again and there's gridlock in Washington or that unemployment is still to high, I cringe at the fact that the stock market is going to be down again. The only saving grace that keeps me from not sleeping and having multiple heart attacks is that I constantly remind myself that stock investments, just like an investment in a home, is a longer term thing...I have to take a step back, and focus on the premise that I am buying something today and looking to sell it at some point in the future and make money in doing so.
The key to making money in the stock market, and seeing the money that you've saved and invested grow, is that you have to:
1 - Do your research. You have to constantly monitor and watch to make sure the stocks you own are doing well, you have to make sure the underlying businesses are performing well, and you have to make sure the company's financials look good and stable. (this is similar to making sure that you are keeping up with one's house, painting, replacing light bulbs, cutting the grass, etc).
2 - Focus on what your individual goals might be. If you need to have the money you've saved grow in the stock market, then you need to understand that when you buy a stock, it WILL move up and down (like a roller coaster). If you have money saved that you need to live off of, then you need to look for investments that can pay you monthly income to live off of. These are called income and dividend investments.
3 - You need to know what your own personal comfort zone is...if the daily ups and downs in the stock market keep you up at night and you can't handle (or don't like) the volatility, then you might not need to be invested at all.
4 - And finally, you need to be aware that investing money in the stock market WILL IN FACT require a bit of faith on your behalf. Faith, that if you buy something today (doing good research and monitoring what goes on), that at some point in the future what you bought will be worth more than what you paid for it (just like with a house).
My point in saying all this is simply that investing in stocks/bonds/mutual funds is something that should not be taken lightly, and when someone decides to do so, they MUST keep in mind that you are doing something today, not for immediate gratification (which is nice), but for the longer term prospect/goal of making money in whatever investment vehicle you decide to put your money in...because after all, what you are trying to do is get the money that you work hard for work for you.
So, if you get home and see on the nightly news that the stock market (or housing market for that matter) is not doing well, or if either have declined in value, remember to think that this is all being done for the future...and as we all should know (just like being on a roller coaster), there will be ups and downs.
Have faith
