Investments – A Grand Way to Make Money or a Silly Way to lose it

For Entertainment Only.The Author is not a Financial Advisor

The Stock Market is something that has always been on the periphery of my interests. I’ve always
wondered how exactly it works, what everyone on Wall Street actually does and most importantly,
how do people make lots of money out of it? I’ve never been able to learn a great deal about it
however, all articles and news regarding the subject contain terms, graphs and statistics that I don’t
understand.

I imagine lots of people feel the same way as I do. Is the Stock Market just a glamorised casino that
relies on luck and chance to create profits and returns, or is it a game of skill and intelligence? I
decided to make myself a strong black coffee, and sit down for a couple of hours to research the
topic and put together a summary of my findings. I hope you enjoy reading the result, and find it
useful and/or interesting:

Are you in any Debt?
If so, focus on paying your credit cards and/or loans first before contemplating buying any shares.
Debt will virtually always cost more per dollar to ‘service’ than the returns that you can expect from
investments. With this in mind it is important to act logically and pay off debts before investing. In
addition to debt, there are other financial priorities that should rank above buying stocks and shares
in your personal hierarchy of monthly outgoings. You should be paying into a pension scheme and
also have a set amount of savings set aside. There are some pension schemes based on stocks
and shares but these will almost always carry an element of risk. It is recommended by many that
people set aside 3 months salary as savings. Savings that won’t be used for investments but remain
tucked away in a savings account, without any risk, to be used if any unforeseen financial mishaps
such as illness or redundancy may occur.

Where to Start?
You’re not in debt, have a pension scheme and savings? Great, maybe investing in stocks and shares
is a wise choice. Just keep in mind that you are introducing an element of risk to your money. If
you are certain that investing is right for you and your money, then you will need a Broker. There
are two types of Brokers – Full Service Brokers & Discount Brokers. A Full Service Broker will provide
financial advice, keep you updated with the performance of your stocks and shares and be readily
available via phone and email if you want to buy shares at any point. Discount Brokers let you do all
the research and monitoring yourself. They generally don’t give advice, just carry out your purchase
decisions. As you might expect, Full Service Brokers charge significantly more money than Discount
Brokers do.
You will generally need approximately $1000 dollars to open an account. Some Brokers will charge
less but have hidden fees to make up for the apparent discount. To get started you can literally just
type “Stock Brokers” into Google. I can’t recommend a specific company however, as I don’t know
enough about the subject unfortunately. Be sure to read around the subject, fees and minimum

investment amounts. Some websites will compare these for you.

Things to Consider
What are your financial Goals? What you aim to do with your money will help to determine
what type of risk you may need to attach to it. If you are looking to provide an income with your
investment, may mean you need to attach more risk to it than if you just want a ‘good return’ on it.

What’s your time frame?
From what I’ve read, if you are investing Short Term – i.e. less than 5 years, then you may wish
to opt for a high interest savings account instead of buying stocks and shares. Longer term
investments generally mean better returns.

Be Diverse
I’m not a financial advisor, but from what I have read – you should not invest all of your money in
one company. In fact, you should spread your investments across different companies, in different
countries and industries. This is one way to, in theory at least, make your investments less risky. If
you invest in companies in just one country, if that particular country is hit hard by a recession; like
Greece at the moment for example, you could lose a lot, even all of your money. However, if your
money is spread across different countries and industries, this is a lot less likely to happy. The same
principle applies when choosing the type of companies to invest in. If you invested all your money in
a company that makes CDs 10 years ago, you might not have much money left over from that
investment today. But if you invested in a number of different industries you may well have
experienced a good return on your investments overall. So keep your ‘portfoilio’ varied.

Have a Buffer of sorts
If possible; get yourself a Stop-Loss order. This is an order placed with your broker, which instructs
him/her to sell once the stock you own is reduced to a certain price. For example, if you put a Stop-
Loss order of 10% on your stock, then, in theory at least, you can’t lose more than 10% on your
investments. This obviously reduces risk and saves you having to watch your stock every minute of
the day to see how it is performing.