About Stock Marketing

Investing in the stock market is not for the faint of heart. The value of even the best companies can rise and fall in response to many factors that are outside of the company's control. Things like the slumping US housing market can drag down companies that seem entirely unrelated to that distressed sector. Markets can react positively or negatively to world events and political machinations.

Warning

Trying to time the market and play for short term gains can be almost impossible. Even the best stock-pickers and market-timers make losing investments from time to time. For the individual investor with modest investment capital, even one serious mistake can wipe out years of gains or worse. While many advise beginning investors to mitigate their risk with diversification, even diversified portfolios can suffer large and prolonged losses during broad economic downturns.

Benefits

That's not to say that everyone should avoid the stock market. The average person can and should consider placing a portion of their long-term savings in the stock market. Overtime, the stock market has a strong history of appreciating in value. Amateur investors can take advantage of this tendency by investing for the long term in investment vehicles that track the performance of the broader market.

Identification

The most common of these are called index funds and they contain a representative set of investments that correspond to the particular index which is being tracked. Index funds track all of the major stock exchanges and most of the major segments as well. For example, you can by a Nasdaq Index fund which tracks the overall performance of the entire range of Nasdaq Stocks or you can by a more tightly focused index fund like a Dow Transport fund. The latter would follow the performance of the companies listed in the Dow's transport sector only. In general, the more narrow the focus of the index fund, the higher the risk if that sector should falter. Broad market indices generally carry the least risk if they are held as a long-term investment.

Time Frame

When you are saving for retirement or other long term goals, short term fluctuations don't really matter unless you are planning on using the money very soon. Many people make the mistake of taking drastic actions during short term market corrections. In other words, if the market drops significantly, many inexperienced investors will decide to sell. The net result of this approach is that these investors may receive a very low price for the stocks or mutual funds that they sell during these periods. Over time, the markets have historically always regained these losses for patient investors who hold onto their investments while the market weathers these short term storms. Some of the most successful investors in the world invest for the long term with a buy and hold strategy.

Expert Insight

Warren Buffet is widely recognized as one of the most successful investors in the world. He gives this advice about stock market investments, "only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." He also described the investment preferences of his Berkshire Hathaway Holding Company this way, "our favourite holding period is forever." Those who would look to protect and grow their savings with stock market investments would do well to follow the advice of one of the world's wealthiest men.

Resources

• Woopidoo! Business and Finance Quotes