Taking a Cautious Approach to the Stock Market

Investing in the stock market is a good way to (probably) increase your “disposable income.” For those unfamiliar with investing, playing the stock market may seem more like playing Russian roulette. It’s not, but perceptions…

Buying stocks means that you have a stake in the ownership of the company – albeit a very small stake. You are a partial ownership of the company. (“Hey, I own Hewlett-Packard!” Ok, maybe not quite.)

Why Should You Buy and Sell Stocks?

Your reason for investing must be decided by you. There are so many reasons why you might want to consider investing, but the final decision largely depends on your personal motivations – and inhibitions.

You might decide to invest to own a piece of a company. This will not get you total control over the company – not even close – but it does give you a degree of power in making some voting decisions about the company’s future.

Other people may opt to invest in companies they are personally drawn to. And probably for most, it’s all impersonally about which stocks they think are likely to result in the greatest bounty.

Choosing Your Stocks

With so many stocks types and prices to choose from, it is certainly understandable that your decision could be a difficult one. There are, however, some practical ways to narrow your decision. But if you are a relative beginner, you might not know what factors to base your investment decisions on.

Assuming there is nothing you find objectionable about a company you are considering an investment with, your main decision-making factor for selecting it needs to be your confidence in the ability of the stock to turn a profit – that is, good return on your investment.

Depending on your needs, you can look into stocks that are likely to be profitable in the short term or those that may take longer before you see any significant gains.

You also need to consider whether you want to buy many smaller, cheaper stocks, or fewer larger stocks. Again, this is a matter of personal preference.

Focus Broadly

Whatever you decide, diversify your portfolio. As the saying goes, do not put all your eggs in one basket. If the basket falls, all the egg crack. So spread your investment over several stocks in multiple sectors of the economy.

This ensures you will not be completely at a loss if one area of the economy crashes or if a company’s profits turn sour. You could lose a portion of your profits, but you will not lose the whole thing fell swoop.

Stock market investing is clearly not for everyone, but if you are at all interested in investing, it is worth a try. Before you actually take the plunge and purchase stocks, take some time to understand what you are doing. You can use Internet site, investment books, or even a financial planner to help guide you through the process.