Some crazy peaks and valleys have been happening in the stock market lately! For the laymen, it can be quite scary, and it also doesn’t seem to make much sense. In fact, some people have equated investing in the stock market like putting your money down on a game in Vegas! But in order to really quantify this chaotic market, a closer look is warranted.
What causes the market to drop over a thousand points in a day, sometimes in a few hours? Computers, that’s what. Since the advent of computerized trading, huge blocks of stock from institutional investing concerns can move in and out of the market in milliseconds! That can cause havoc for the neophyte, and yet the neophyte shouldn’t be playing in this arena, at least against the big boys. I’m sure there are some small investors out there that disagree, and maybe have made money because of the zig-zagging that has been going on, but very few. Take a look at the statistics and that will sober you as to how many day traders actually make money day in and day out!
So is investing in the stock market just like gambling? The answer is it depends on how you invest in the market. I know, I know, I hate that answer just as much as you do! But the fact remains that if an investor is trading stocks on a daily basis, then yes, that is pretty close to gambling. Just like putting money down on the roulette wheel and betting high numbers or low numbers on the outside of the layout, the stock market goes up and it goes down, all in one day. But (and this is a big but), if you are in the market for the long haul, then you should do rather well. So the next question is……what is the long haul?
In order to refrain from becoming too semantic, the long haul could be defined over the course of your lifetime, or at least your investing lifetime. Someone who invests in the market could use the rule of taking his or her age, say forty years old, subtracting that from 100, and investing that amount in stocks. For instance, using the example above, then 60 percent should be invested into stocks, and 40 percent into “safer” or less risky financial instruments such as certificates of deposit, or bonds. The theory is that the older you get the less risky your investments become. But what is safe nowadays? Okay, those vehicles that have less fluctuation than stocks, like a money market. But the returns right now are horrendously low! So is this just like gambling?
Gambling is trying to acquire more money with the money you have, plain and simple. The X factor is the risk attached. And yet, there is risk in everything that we do! So the question becomes how much risk are you willing to take? It really is a question of odds and statistics, and we are only skirting the issue here. But the fact remains, if you are comfortable with risking a certain amount of your money, whether it be in the stock market, the real estate area, or the casino and you can sleep at night, then that is all that matters. Every investor is different, and every investor has a different appetite for risk. So analyze yourself first, then go from there!