Addressing Stock Market Fears

I know you have looked at the balance sheets and think I am a great value for the selling price. Or, you may have examined other information that supports your decision to buy me today. Your desire to keep me eternally and spread the wealth to your children and grandchildren may never happen because I change frequently and sometimes very drastically. The changes I make will happen when you least expect it or maybe it will happen when you need me the most. Because I am so unreliable and I change frequently, please don't marry me.

What if this sign was posted next to every stock you ever thought about buying? You would be warned ahead of time that the prices change frequently and maybe even drastically. You would know that the stock market is not like a bank savings account. You aren't guaranteed to put money in and take out more than you deposited. This type of caution would make you aware that you need to keep an eye open and stay informed, but would it be enough to compel you to watch your stocks and get rid of them when you've made a profit? Stocks are not a bad investment. They are available and can be bought by people that have little or no money.

Whether a friend told you about an infamous stock tip or you've done your homework, it doesn't matter how you arrived at the decision to buy a particular stock. What matters most is how you manage the stock's investment once you own it. The management of a stock is not difficult. When you purchase a stock, you know when the stock price has increased or decreased. Anyone knows when they have made money. If the selling price is higher than what you bought it for, you've made money. But, do you know your selling point. Simply put, do you know how much money you want to make? Set a goal and stick to it.

Maybe you want to take a vacation. Using this short term objective, use the stocks you've invested in, make enough money to pay for the vacation, and sell the stock. The bottom line is profit. You've bought this stock to make money. Once that goal is achieved, sell. Sounds too good to be true, doesn't it?

Depending on the trading frequency, some brokerage companies don't charge their customers to buy and sell stock. Making money from the stock market is the equivalent of having a job. You will have to pay additional income taxes on monies earned. Keeping your stock for over a year will reduce the amount of taxes. Now having said that, figure the income taxes into the selling price so that you will know your net profit. Paying a higher income tax because of the additional money made when you sell stocks for a profit shouldn't keep you from making money. Finding stocks to buy and making decisions to buy and sell is easy work. Buying and selling stocks for a profit beats a full time or part time job. Either way, you still have to pay additional taxes.

The stock market changes too often and too drastically for you to not be aware of what's going on. Buying a stock and never looking at it for years or only glancing at a mailed quarterly statement is known as marrying a stock. You put your money into the business and you don't know if the stock price has fallen or if the company has gone bankrupt. Your quarterly statement will show how much money you lost or gained. A loss can be avoided.

Thanks to the computer, you can look at your stock's price any time. You can evaluate your stock's performance and determine whether or not you are on track to make the money originally intended. Marrying a stock and never looking at its performance or price will cost you money. Also, relying on a quarterly statement from your broker will cost you money.

There are no limits to the number of times you can buy and sell a stock. There are no limits or restrictions on how many shares you can own. The hands off stock management style will not prepare you for the crucial market changes known as the "Bear" market that occasionally occur. When your goal is to make money, you will need to not marry a stock.