There’s an old Steve Martin joke, and it goes like this: how do you avoid paying taxes on a million dollars? Okay, first, get a million dollars…
Insert mild laughter here. Unless, of course, you really do have a million dollars. Which brings us to our real focus today.
Assuming you have extra cash lying around and you realize that stuffing it under your bed isn’t the best way to deal with it, you are faced with the decision as to how to invest your money.
Everybody knows about the stock market.
Just as they know they can stick their money into a savings account, buy gold coins or antiques or other collectibles, get into real estate, or use it to start a business venture.
But the pros and cons of the stock market make it unique in the world of investment, and before one leaps, one must look carefully. Because the bottom isn’t fixed, it can sink faster than a bad Steve Martin joke.
On the pro side…
The stock market has statistically out-performed virtually any other type of financial investment there is. There have certainly been significant swings, including sudden dips in the 2000 tech and telecom crash, and just last year when the bottom dropped out based on the impending recession. But the trend over time has remained positive, and it has exceeded the return on investments in bank savings accounts when viewed as a whole.
The market’s role in the recession could be argued to be more effect than cause, though often the two contexts are confused. In either case, though, the stock market does correlate to the overall economy, both as a causal and responding entity.
One advantage of the stock market is, and always has been, the ability to liquidate your investment almost immediately. No other form of investment compares on this issue, and likewise, none (other than a bank savings account) can guarantee that what you get back will be at least as much as you put in.
On the con side…
It’s virtually impossible to gauge the status of the market at a given time or year. Which means, if you need your money out soon, or even at a specific time, there’s no reliable way to maintain certainty that your money will come back to you whole, much less with a profit attached.
Additionally, the individual performance of a company has as much to do with a stock’s performance as does the overall economic outlook. Which means, you may buy what seems to be a perfectly solid stock in a perfectly stable market, and even though the market maintains momentum, the stock may tumble on bad news.
In short, the stock market always presents the risk of loss.
So not only are investors challenged to compare the stock market to other forms of investment, pro and con, they need to understand the variables with a view toward choosing stocks that meet their needs over time.
And there’s no joke involved on that issue. If you do have that million dollars, make sure you look at all your options, and then, if there’s one handy, look in the mirror, too.
Because, when it comes to investing your money, that’s the biggest variable of all.
