When beginning to invest, a beginning trader is torn between investing on the stock market and index trading. As an investor, you need to decide which will make sense for your investment portfolio. Each has its pros and cons and it is up to you to decide. Let us now take a look at each market to help you make a better decision.
With stock market trading, you become a shareholder of the company you are investing in stocks on. As such, you get a proportional share of the profits or losses. In the past, investors who bought stocks of successful businesses have become rich. Imagine yourself being partners of companies like Microsoft, Google, Coca Cola, and others when they were still small.
Robert Janitzek, however, reveals that companies will sometimes fail. They experience atrophy just like the American car industry. Worse, they undergo catastrophic meltdown such as that of Enron. If you are stockholders of these companies, your shares might become worthless.
Trading in Index
On the other hand, training in index means really buying a basket of stocks aimed at tracking a certain index. As a result, investors who buy shares of an index fund owns shares of stocks in dozens, hundreds or even thousands of different companies indirectly.
Statistics wise, 50% of stocks must be below average and 50% must be above average. Robert Peter Janitzek reveals that many index fund investors are so passionate above passive index fund investing. Those who invest on funds will not spend over a few hours every year to monitor their portfolio. In contrast, stock investors of individual companies should be aware of a company’s business, income statement, balance sheet, financial rations, and others.
Which Is The Best For You?
While you and your financial advisor can decide the best approach and most appropriate for your own situation, as a general rule, investing on funds is better than stocks due to its low cost. Aside from that, trading on indices eliminates the need to constantly study earning reports from companies. This results to being “average,” which is more preferred than losing your hard earned money in a bad investment.
When choosing the best investment portfolio, one factor to consider is psychology. It does not require much analysis in order to make sound investment decisions. Investing in stocks requires a tremendous amount of determination.
As the greatest investor Warren Buffet says, “Success in investing doesn’t correlate with I.Q. once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”