Long and Short Term Investments
Thinking about investing in the U.S. stock market often conjures up images of powerful people moving huge amounts of money into and out of the market thereby increasing their fortunes. Or, the image of the average American investor putting the little bit of money he has into just the right stock and becoming rich overnight. It may even bring up images of the day trader who starts out with a small amount of borrowed money in the morning, and turns it into a small fortune by the end of the day. Many people think of the stock market as a place where the possibility always exists of becoming very rich, very quickly. The stock market may not be the best place to put your money in the short run, but it’s a pretty good place to put your money in the long run
Any investment in the stock market should be long-term, or five years or more. If you are going to need the money in less than five years, then don't invest in stocks. If, however, you are going to leave the invested money alone for five, ten or even more years, then the stock market can be a wonderful investment if you invest in it in a wise manner. This is because the stock market can rise and crash dramatically. However, if you simply wait out the rises and the falls, with inflation rising steadily, your stock can be worth much more than what you paid for it 20 years earlier.
If you invest in a stock for less than five years, it is very likely that you will lose money. In a short amount of time the stock market will either rise very little, or fall. This means you aren’t likely to make any profit at all. In the short term, emotion often sways the performance of both the market and individual stocks. Apple has a bad quarter, everyone panics and sells the stock. The CEO of Under Armour announces he will be divesting some of his ownership shares and shares drop 50% in three months. Everyone thinks there is a recession and that the stock market is tanking, then...