Sunday, August 03, 2008

Stocks may not be the right "investment" for everyone

Housing crisis, sub-prime mortgages and the slumping economy made the stocks of financial institutions to reach their all time lows. Stocks that were trading in 100s are trading in pennies. Stocks that took 5 - 10 years to reach their all time highs came down to their all time lows in 5 - 10 months. What if you had invested 'just' in financial stocks. Many people have lost their retirement savings because of this crisis. What if you were to be one of them?

Diversification is the key. Maintain a diversified portfolio that spans across different market segments, and industries. Better yet, choose other investments like mutual funds, gold, bonds etc., Let us say, you planted a tree, programmed sprinklers and forgot about it! What is the probability that the tree will grow as you had wished? What if the sprinklers didn't work, what if the wind uprooted the plant, what if some animal grazed over it, what if ... what if... ? Similarly, there are thousand factors that can influence the value of your investment. Monitor your portfolio regularly. Do adjustments based on the market conditions.

Stocks may not be the right "investment" if you don't understand its dynamics and if you don't have time to 'monitor' them regularly.

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