Which Of The Following Is Not A Reason Why People Invest In The Stock Market?

Q. Which of the following is not a reason why people invest in the stock market?

(a) Investing in companies through the stock market offers a chance to share in the profits of those companies.
(b) Investing in companies through the stock market offers a chance to share in the profits of those companies.
(c) Investing is a guaranteed way to make money.
(d) None of the above.

Ans: Option (c) is the correct answer, as just investing in the stock market does not guarantee the fact that you are going to make money.

Explanation

The correct answer to the question of “Which of the following is not a reason why people invest in the stock market?” is option C, because there is no way of guaranteeing 100% that you are going to get success after investing. Often people seek help from private money lenders for emergency fund requirements. For these types of emergency fund stock market investments are going to be a good option. You can withdraw the amount at any time as per your requirement.

Though the stock market is a very risky investment there’s always a chance for you to get all of the invested money! Hence, you need to be cautious before investing in any sort of such things.

Things To Note Before Getting Started With Investing

Here is a list of a few pointers that you need to take note of before getting started with investing in the stock market:

1. Purchase The Correct Investment

Purchasing the correct stock is much easier said than done. It is more important to take into account the future of how a stock would perform, rather than only taking into account how it might have done in the past.

When deciding on a company, for investing your stocks in – you need to consider some fundamentals first – like price-to-earning ratio and earnings per share. There’s also much more that needs to be done than that – analyzing the management team of the company, studying the financials, evaluating the competitive advantages, etc.

2. Avoid Going After Individual Stocks

This is a really important tip which you absolutely need to pay heed to. You need to make sure that you are avoiding individual stocks when you are just getting your start in this field.

A great alternative to these types of stocks is index funds. These can either be an ETF (exchange-traded fund) or a mutual fund. These specific funds also hold hundreds/dozens of stocks.

3. Be Prepared For Failure

The biggest issue for investors is facing a loss in their investments. This is common and can happen because the stock market is of such a nature, that it keeps fluctuating from time to time. You are going to get both gains and losses here. When faced with losses, you have to steel yourself, or you are going to inevitably buy high and then sell low because of panic.

This brings the importance of ‘diversifying your portfolio’, which I will be discussing more in the next point!

Tip: If you missed out on my answer on “Which of the following is not a reason why people invest in the stock market?” then make sure to go back and give it a read.

4. Go For A Diversified Portfolio

A great advantage of diversifying your portfolio is that it actively reduces the risk of facing great losses. For instance, if you face a loss in one of the owned stocks – you could still make up the money in all of the other ones that you have invested in.

Also to be noted that diversification does not just indicate a lot of different stocks. The stocks should be of different industries as well. This way you are going to benefit even if one amongst them faces losses.

Keep reading till the end of the article to find out more information about the same!

5. Avoid Trading On Short Term

You need to understand that you are investing for the long term as investing for the very short term is not fruitful and makes you lose your money. There is even a lot of research on this, which shows that day traders/short-term investors lose their money.

Always know that it is not just you investing in stocks, there are a lot of other high-powered competitors as well who are investing in the same stock as you. This just means you need to have all the more time for carefully and strategically planning out the ways of investing – and which is best done for the long term.

6. Get Started Now!

There’s no such thing as a perfect opportunity to get started with investing in the stock market. Nobody can guarantee a hundred percent when the best time is for getting in. Investing is meant to be an activity for the long term.

It would probably be for the best to get started soon if you have made up your mind regarding getting started with investing.

7. Stay Committed To Your Portfolio

Investing should always be a long-term activity. Also, make sure to cut down on the habit of getting daily updates regarding financial news – this way you are going to develop a lot of patience.

Avoiding getting yourself mingled with such forms of daily news is also going to make sure that you do not feel too elated or unnerved.

To Wrap It Up!

Before setting yourself up for investing in stocks, you also need to be prepared for its associated risks. It would be for the best if you do not invest all of your money in one place as well.

Thank you for reading up till the end of the article. I hope you found the information regarding “Which of the following is not a reason why people invest in the stock market” useful.

Also Read: