Investing in stocks can be scary, to say the least. One moment, you’re swimming in cash — the next, you’re swimming in tears. Is it any wonder, then, that only 18 percent of us millennials entrust our future to the stock market?
Still, stocks are worth considering as investments, even if a so-called “bear market” is on the horizon. And here’s why:
The Bear Market Is a Great Time to Buy
A lot of people buy during a “bull market,” when stock prices are high and are expected to go up even further. If you think about it, though, it’s a pretty silly strategy. Why buy a $100 piece of paper now, when you can buy the same later for $50?
Naturally, the next thing you want to know is, “When is ‘later’?” To be honest, no one can really predict the exact moment when stock prices will crash and when bargains will flow out of Wall Street like water from a fountain. But there is a way to protect yourself against possible losses, regardless of whether Mr. Market goes down or up. It’s called “dollar-cost averaging.”
Essentially, you carve out a position in the market by purchasing more stocks when prices go down, then purchasing less when prices go up. For example, let’s say you bought 30 shares at $100 each for the first month, 50 shares at $50 the next, and another 30 shares at $100 the month after that. Your position will look like this:
This strategy allows you to offset possible losses by reducing your effective cost per share. In this case, your effective cost is $77.27 per share ($8,500 divided by 110).
Of course, this is an extremely simplified example. You still have to consider several factors, the most important of which is the company whose stock you want to buy.
Businesses Never Go Out of Style
In Warren Buffett’s Fortune article, “Why Stocks Beat Gold and Bonds“, he put it best when he said: “People will forever exchange what they produce for what others produce.”
Regardless of what happens to the economy, there will always be at least one person who’ll make money from it. And as long as these businesses need to exist, they’ll also need people like you, the investor, to keep them afloat with capital. After all, stocks aren’t just pieces of paper — they’re proof that you have a financial stake in a company.
People Have Gotten, and Are Getting, Rich From the Stock Market
Although Warren Buffett is probably the most famous, and richest, stock investor, he’s not the only one you can learn from.
There’s Peter Lynch, the fund manager who grew Fidelity Magellan’s $18 million managed assets to $14 billion. There’s the late Philip Fisher, who was so adept at finding long-term growth stocks, that he held Motorola shares for 21 years. And there are probably many more of them in our country, whether we’ve heard of them or not. If they can do it, so can you.
Don’t Rule Out Stocks Just Yet
Let’s be clear. This article isn’t suggesting that you put all your hard-earned money into stocks right away. It’s just one of several possible investment opportunities, which will allow you to go beyond stuffing cash underneath your pillow, and move into a position where you don’t have to worry much about where the next paycheck will come from. Yes, stocks are risky, but so are other types of investments if you look at them from a different angle.
So that was my little blurb about why the stock market shouldn’t scare you. If you’re still unsure about whether you should invest in stocks or not, try to read more about them. Know how they work. Know how successful investors make stocks work for them. Afterwards, you can make a more informed decision on whether stock investing is for you. If it’s not, you can always learn more about other opportunities that are both profitable and appealing to you. Hey, that’s what moneymaking should be about, right?
Image via Thomas Leuthard