I wish we were talking about necklines here, but we're not.
For those of you unfamiliar with the stock market, what you hear from the talking heads on TV can sound pretty scary. I'm going to give you a two minute education that will hopefully clear things up for you a little bit. Or maybe you'll just say, "huh?" We'll see.
Publicly owned companies issue shares of stock. Millions of them, usually. If you buy 100 shares of Harley Davidson, it would cost you just under $3,000 and you would be a teeny tiny owner of the company but with none of the responsibilities of running the company. You would, however share in the profits or losses of the company.
If lots of Harleys were produced inexpensively and sold at a high price, you might reasonably expect your stock to rise in value. If, on the other hand, you have different fingers like I do... wait. Wrong discussion. If Harley sells fewer motorcycles because of a tough economy and they wind up with a bunch of them sitting on showrooms, then you might reasonably expect the value of your stock to go down.
Those are the unmanaged market factors. What a lot of people forget, is that America is a capitalistic society and that the people that have managed to rise to the top levels of our corporations are generally very smart people that know their only job is to produce profits for the owners of the company (that's you, the stock holder). These very smart people are always thinking. "What can we do to make DoerBitter Dispatch readers more money?"
Well, these folks figure out ways to reduce expenses, how to create interest in their new line of Hogs, how to get butts in the seats. If they can convince 60 year old accountants that this is a new road to cool, then by golly, they have just opened up a new market and sold more bikes and made you more money. Of course, in that example, we might have to take a few extra steps because plaid sweaters and argyle socks clash with eau de Harley, but again, I digress.
As a result of this corporate intelligence in our capitalistic nation, companies grow over time. Sure there are ups and downs along the way, but if you own good companies that you understand, you will make money over time. Ignore the bar stool talk about the huge profit or huge loss your buddy made. They are not investors, they are gamblers and they rely on luck.
Buy quality and hold it for a long time. If something changes; if Harley Davidson decides that square wheels would be an interesting change to their product line for instance, maybe then it is time to take your profit and walk away.
Diversification is very important. You don't want to put all your eggs in one Harley Davidson. They vibrate like crazy. Mutual funds are a common and relatively safe way to buy multiple companies at one time.
$10,000 invested in Harley Davidson in April of 1990 is today worth $275,934. Remember that we have had several "devastating" market crashes during that time period. Remember what I said about ignoring the talking heads on TV? Do find a financial advisor you trust and listen to what he or she tells you. A good advisor will educate you over time, which will help you be more comfortable changing the channel when the news anchor starts screaming hysterically about the latest stock market "free fall".
Ignore the market "plunging" and "soaring" you hear about on the evening news. Invest regularly and ignore the noise. When retirement day gets here, you will find out that capitalism ain't so bad after all.