Investing In Today's Risky Economy

With the financial news being as bad as is it today, people are wondering why one should even bother investing in the stock market  Isn't that just putting your money at risk?

Yes and no.  Of course, to make any money, you have to accept some level of risk, but it doesn't have to be as much as you think.  The key to weathering the market storms is diversification.  If you spread your wealth across many different asset classes, you will get yourself a lot further than simply investing in individual stocks. 

Having a diverse portfolio will help you be able to weather the ups and downs of the market.  If the asset classes are somewhat unrelated, you will be afforded protection since many classes will move in opposite directions from each other depending on their relationships.  Choosing this asset allocation is responsible for most of your gains and losses in the market.

The easiest way to achieve a diversified assets allocation is to invest with index funds.  Index funds represent a larg segment of the market with a single security that is easy to by and sell.  Index funds make it really easy to pick a target asset allocation and achieve it, greatly reducing your risk.

Another way to reduce risk and maximize return is to do dollar cost averaging when purchasing stocks.  What this means is that you set a fixed amount of money aside each month to buy stocks with.  If the market is up, you've earned more money off of the stocks you have.  If the market is down, you just got more stocks for your money.  Since it is impossible to predict the stock market, this approach can really reduce your exposure to risk.

Of course, no investing strategy is risk proof, but using the above strategies get you about as close as you possibly can.  Get a good discount broker, and start investing in the stock market today!