The basic principle in investing money in stock market is understanding volatility, dependencies and levers of the market. It is always recommended to invest extra money and savings in stock market so that in contingencies you do not have to borrow money from lenders to make your ends meet. Investment in stock market is easy through stock broking companies. However, this investment in stock market depend on certain parameters. Smart investors validate these parameters before investing in stocks. Share market brokers provide support in trading shares.
Safe Return of Investment
An investment’s earning depends on how much the investment has grown (or depreciated, as the case may be). ROI is performance parameter of any investment made in stock market. ROI figures are usually calculated as a rate or percentage that measures how much the investment’s value has changed over a specified period of time. Let us understand ROI in simple example. So if an investment has a 10-year annual return of 9 percent, then every year for the past 10 years that investment, on average, has gotten 9 percent bigger than it was the year before.
So what kind of ROI’s you can anticipate from different kinds of investments? Some suggest to use current trends, past history and immediate performance of the investment plan. Only using credible past to predict the future, especially the recent projection future, is risky. It is not necessary that success story would repeat itself as it happened in the past, not in the same manner and not necessarily how you anticipate it to.
ROI also depends on the sector invested. Over the past decades, when the market grew, ownership investments like stocks and real estate returned around 9 to 10 percent per year, easily outperforming lending investments such as bonds (about 7 percent) and savings accounts (around 8 percent) in the investment performance comparison.
Inflation averaged around 4 percent per year, so ROI’s of savings account and bond hardly match up with increases in the cost of living. Including the taxes that you pay on your regular investment earnings, the ROI’s on lending investments actually didn’t keep up with the relative growth in inflation and investment.
High Risk More Income
It is simply measuring risks in volatile stocks investments. Safe ROI factor has various parameters of performance but volatile investment has narrow approach of seeking high ROI without considering background and project reach of the company. Who does not want more money? But is it worth to go for higher ROI stocks when the risk is higher, So what’s the catch?
Fluctuations in valuation of such stocks is very frequent. The higher an investment’s potential ROI, the greater (mostly) is its risk. But the main disadvantage to ownership investments is volatility (the size and magnitude of the fluctuations in the value of an investment). Since last few decades, for example, most of the high ROI stocks declined by 15 to 10 percent in a year, approximately once every five years. Drops in such stock prices of more than 20 percent occurred about once every ten years. Thus, in order to earn those big long-term stock market ROIs of about 10 to 25 percent per year, you had to tolerate bigger risk of losing money. This is how to invest in share market wisely works. That’s why as recommended earlier, you absolutely should not put all your money in the stock market.
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