Last week, after months of record growth, the stock market finally started to take a bit of a tumble. This was based on some financial information that speculators decided wasn’t in their best interest that came from Ben Bernanke, which didn’t seem so bad to me or anyone else, yet seemed to scare investors enough to drag the market down.

Personal finance
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These wusses aside, when you see actions like this on the basis of sketchy negative information, it makes you wonder why anyone would ever want to invest money in the stock market. After all, there’s a whole lot of money riding on what these guys think, and a lot of that money belongs to “we the people”. One would think that these guys are a lot smarter than us when it comes to things like this, yet we find out that there’s not that many of them who have portfolios all that much better than ours. It’s the people they report to that seem to do better than all of us because they make money whether the market does or not.

This lends us to look at the most important question of our financial lives, that being should we even invest in the stock market at all? It’s a topic that hasn’t specifically been covered on this blog, and it’s about time we addressed it.

Although the last five years haven’t been the most stable period, overall it seems that the general history of the stock market has been good to most people. It’s not necessarily in knowing which stocks are best, but it has more to do with the willingness to ride the wave no matter which way it goes for a long period of time as well as to continually put money into it.

It was explained to me by a financial advisor like this. Say the market started at 10,000, and you started off by putting $1,000 into the market. If you could put at least $1,000 a month into the market and it’s going up, your investment will go up. Of course if you’re putting $1000 into the market every month and the market is going down, the value of your portfolio goes down as well.

But here’s the flipside. When the stock market decides to go back up and you were still putting money into it, you’ll get a bigger benefit quicker from it than the loss you would take if you are putting money in while it was going down. In essence, putting money into the market while it’s going down helps to offset your losses, thus when it turns around and starts gaining again what you already have there will grow faster.

It all comes down to how much risk you can afford, as well as how fast the market is falling. There are a lot of people in 2009 taking their money out of the market because everything was falling so fast. I was one of those people I have to admit, as I lost nearly 65% of what I had invested. However, if I’d had the stomach to ride it out until even this past April, and I had continued to put in just $100 a month, my investment would have grown exponentially and I’d be sitting pretty right now.

Of course you never know, since these days we all entrust someone else to handle our money, so it’s also possible that everything I had could have gone away before it had a chance to turn around. When I took my money out the market had fallen to 6500 and didn’t look like it was ever going to stop.

So, back to our initial question; should you be investing your money in the stock market? My response is going to be the same as if you asked me if you should be playing poker. If you only start with enough that you can afford to lose then it’s fine. If you’re betting your life on it, you might want to proceed slowly and keep some of it in a safe place like a bank or CDs, which won’t grow your money all that fast but at least makes sure you have some in case the other money starts dwindling away.

Diversifying your money is safer than putting it all on one particular stock, yet it’s all still pretty risky. But without risk, you’ll never grow your money, and a little growth never hurt anybody.

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