Many people see the stock market as nothing more than one big “throw your money in and get some back” thing. But this is definitely not the case. The stock market hosts tons of different options depending on your time spent in the market, budget, risks you want to take, and your style of earning.
According to Andre Witzel, author, investor and the face behind the https://andrewitzel.com/, learning the ins and outs of trading will get you a long way. That is, anyone can do it if they’re willing to do all it takes and give their best to ensure success.
Index funds
There are many different stock options you can buy on the market. For now, we’ll just cover the main ones.
Index stocks are a collection of little shares of a bunch of companies. There is an index called “The S&P 500” which is a collection of the 500 biggest companies in the US. So, when you are buying into an index fund that money gets split between all those companies, for example, if a person invests 1000 USD into the S&P 500, that 1000 will be split between 500 – making the person the owner of a little slice of all of them.
Why are index funds good?
Index funds are mostly appealing to investors as they carry a very low risk. For instance, if one company loses 20% another might gain 40%. However, keep in mind that even though index funds do tend to have a lower risk factor, a financial crisis can still happen like in 2008. But on average the “S&P 500” has been returning a solid 10,5% ever since the 1950s. Again, this doesn't mean that there is no risk involved, but it certainly is quite low.
Why index funds may not work for all?
As we already mentioned, the “S&P 500” is an index fund that has been averaging a 10,5% return a year. This barely beats inflation. Since inflation rates easily rise to 8% on average, this would mean you are only making a 2% net return on your investment. So, when compared to individual stocks or forex trading where a return of 30% is not a weird thing, index funds don’t offer the best ROI.
Who should invest in index funds?
People who are looking for a long term investment with low risk should be the ones to invest in index funds. Additionally, those who approach this type of investment as a savings account, and not a way to get rich fast, are the ones who will benefit the most from it.
Forex trading
Forex trading is the process of speculating on currency price fluctuations to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, a trader is speculating on whether one currency will rise or fall in value against the other.
Why is Forex trading good?
Fast growth is the number one reason why people invest in Forex. Unlike index funds, Forex trades are known for their explosive growth. It’s not rare to see someone making 30% profit in a matter of days or even hours. Forex trading is, therefore, perfect for all of the day traders out there. So, it’s safe to say that it’s not odd to see insane growth within a few hours after opening a trade. Forex is mostly pegged against for example EUR – USD or USD – GBP, etc.
Why Forex trading may not work for all?
With fast growth also comes the increased risk. You can lose your entire investment within hours, or minutes if you are not careful enough. Also, this type of investing can get quite stressful, which is another aspect you need to factor in if you’re considering giving it a shot.
Who is Forex trading for?
As mentioned, Forex trading will mostly suit traders who buy and sell within days or weeks, i.e., day traders. As mentioned previously, this type of investing can get quite stressful, as Forex traders need to ensure they stay in the loop at all times.
If you are considering entering the investment market, make sure you do proper research beforehand and learn all the ins and outs of various investment types to ensure that you boost your chances of reaching success.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
