Stock market trading is nearly as old as independent America. It began with a government scheme to finance the war by selling bonds, with the promise to pay back at profit at a later date. This idea of fund raising gained even more popularity when private banks too began to raise money issuing shares to private investors. It wasn’t too long before large companies picked up the game. Early on it was perceived as a rich man’s hobby but in today’s economy it’s every man’s weakness.
However, investment is a lot like taking a trip to strange new lands. You’re excited to explore where your money will take you, but without a good map chances are you will do a lot of unnecessary driving around to get there. And as Leonardo da Vinci once said, “Folly is the buckler of shame as importunity is of poverty,” nevertheless, some of the frustration can be alleviated when you are aware of the most common mistakes or myths that lead can you down dead ends.
Number one regardless of what you may have been told, a broker isn’t necessarily a guarantee. If you look at the facts surrounding some very notable bankruptcy cases, for instance Enron, K-mart and Polaroid you’ll note that it wasn’t the brokers that raised the red flags. Brokers have valuable knowledge of investment procedure and can advise on mutual funds that underperform the markets, but remember they are still vulnerable to the shock waves taking place due to economic dissipations out of their control. The best way to utilize your broker is as an advisor and a means to educate yourself on investment practices.
Secondly retirement should never be tacked on the bottom of your investment savings plan. To count on last minute stock assets to plump your retirement savings is dangerous myth. Think of it in terms of a sort of insurance—allocate some of your security savings for retirement now, so that you will be able to maintain your lifestyle requirements on into your golden years. After all you have no idea how the market will fare when you reach sixty five. A deep drop in the money market could devastate your superannuation savings if you haven’t prepared for it. Begin your portfolio planning with a risk evaluation, so you can have a better picture of where you money can be invested to bring you both the short and long-term rewards.
The third and maybe most critical myth of all is that you must diversify every last investment dollar. The outcome of which is chaos to your portfolio. It’s true that diversification is good. It gives you a cushion in case one or two of your stocks go south not to have all your eggs in one basket. But it’s simply crazy to buy into every opportunity. Why complicate a well-oiled machine with too many parts? Keep your eye on your top twenty picks. These are the forerunners of consistent profits. If they don’t then change is in order but you don’t reduce risk by increasing the range. Evoke Albert Einstein’s sage advice that “Insanity is doing the same thing expecting different results,”
What about Global Markets? Is it really optimal to spread your risk overseas? Absolutely, at the rate our markets expand to the world market place it would be just plain silly not to. The driving force of economic growth is in stability of our global markets. Intelligent investors will also do whatever they can to alleviate global panic. The proof is in the pudding; “NEW YORK, April 29 (Reuters) – Global markets closed out a week to remember on Friday as Federal Reserve chairman Ben Bernanke’s pledge to keep cheap money flowing through the economy pushed the Nasdaq to a 10-year high, and gold and silver broke records.”
In a nutshell, get a map and gain knowledge, but remember, “All knowledge originates in our sensibilities.”
Leonardo da Vinci