Beginning Stock Investor? Here's All You Need to Know
By Stacy Johnson
NEW YORK (MoneyTalksNews)--Which would you rather have: $108,000 or $600,000?
Start with $300, add $300 monthly for 30 years, and you'll accumulate $108,000. But here's how much you'll have by compounding at various interest rates:
- 2 percent -- $147,622.
- 5 percent -- $245,609.
- 10 percent -- $623,787.
The lesson? Saving is important, but what you earn on your savings is super important.
Unfortunately, today there's no way to earn anything close to 10 percent in an insured savings account. In fact, it's tough to earn 2 percent. The only way to get higher returns is to take some risk, like that offered by stocks.
Depending on how you measure it, stocks have averaged 8 percent to 10 percent annually over the last 100 years. Of course, stocks entail risk; that's why they pay more. But avoiding risk creates a different one - the risk of not having enough to survive your retirement years.
So learning about stocks is important. And it's not rocket science. In fact, you can learn everything you need to know in this one article. Let's start with this recent video:
Over the decades, Wall Street has spent billions in advertising to convince Main Street we're not smart enough to invest without paying them for advice. This is a lie, perpetuated for no other reason than to line their pockets with our cash.
All you need to do is follow these rules.
Rule No. 1: Long-term money only
If stocks didn't pay more than less-risky alternatives over time, they wouldn't exist.
But the key words in that sentence are "over time." When it comes to stocks, the longer your investment horizon, the lower the risk.
Day trading is exceedingly risky because nobody knows what's going to happen on any given day. Investing in quality stocks over decades carries far less risk, because historically quality companies become more valuable over time, and so do their shares.
That's why you should never expose money to stocks that you'll need within five years. And that's the minimum.
Rule No. 2: Moderation
Because the stock market is risky, it's not the basket for all your eggs.