I read an interesting article on DailyFinance the other day, 7 Reasons Not To Invest In the Stock Market In 2010.
Obviously the title is more drastic than what the 7 reasons actually are; however, these reasons do make some valid points you should consider before entering the stock market. I’ve quoted 4 of the 7 reasons, with my commentary under each argument.
1. If you don’t understand the difference between investing and gambling.
Investing is for the long term. Gambling is for those seeking immediate gratification. If you don’t have at least five years before you will need 20% of more of the amount you plan to invest, stay out of the stock market.
While I don’t necessarily feel you need to allot five years, you should plan to not need your invested money for some extended period. Many new traders think they can simple withdrawal earned returns like an ATM; however, that is not the case and, in most cases, you have to pay some sort of fee to take money out.
2. If you think you can time the markets.
Market timing is nothing more than rank speculation. There’s no evidence anyone has the ability to time the markets. Most market-timing newsletters last about four years before going out of business. If these “experts” can’t consistently time the markets, neither can you.
I never truly understood the whole “sit on the sidelines” theory. What dictates that its the right time to get in the market? The time is never right, and when you think it is then you’re probably late.
3. If you think you can pick stock “winners.”
Stocks are fairly priced, based on all available information about them, which is transmitted instantly to millions of investors. It’s tomorrow’s news that moves stock prices. Do you know tomorrow’s news? Then don’t try to pick stock winners.
Now more than ever stocks move on future or “perceived facts” then actual data. If the news is already made public, then odds are you’re probably too late. If you don’t have the foresight to see such trends, then you may have trouble trying to spot profitable areas.
4. If your goal is to make a “killing” in the markets.
It’s far more likely the markets will have you for breakfast. Based on all available data, most investors would be far better off if they never invested in the stock markets and bought Treasury bills or a short- or intermediate-term bond index fund instead. In stark contrast, investors who simply captured market returns, with a globally diversified, risk-appropriate portfolio of low-cost index funds, did just fine. Only 10% of individual investors fit into this category.
Stock trading is actually quite easy; however, because we are dealing with money most traders/investors make it much more complicated than it needs to be, and it distorts common-sense at times. While most people should be successul trading stocks, the truth is that many aren’t.
How will you do in 2010?