Why Many People Think Shares Are High Risk

Many people liken investing in shares to betting on horse racing or going to the casino. Why?

Here is a typical example of a first-time investor:
Without any experience, professional advice, or education, they purchase shares. They then lose all of their money. Based on the experience, they conclude shares are a high-risk investment. Badly burnt once, they never again enter into the share market.

Let's take a closer look at this typical share trading experience.

It normally begins with a hot tip from a friend, family member, media article or a taxi driver. The person who gives the tip has already invested and is going to make a fortune.

The first-time investor does some research. They ask friends and family members their thoughts. These people more than likely have the same advice from the same person. What a great idea, we’ll all be rich. The first-time investor visits the company’s web site to see what they have to say. Surprise, the company’s web site is very positive on the stock.

To save money, the first-time investor goes along to a discount broker and places the trade.

A slightly more educated first-time investor may decide to pay a little extra and call a stockbroker to get their opinion and place the trade. The stockbroker most likely has never heard of the stock and recommends against the buy, explaining that it is high risk. But this is all too late, the investor has it in their head that this is easy money and pushes ahead regardless of the advice given.

The stock fails and the company goes broke. The first-time investor loses all their money. Badly burnt the first-time investor concludes that the share market is a high-risk game. And stockbrokers don’t know anything or add any value.

The Lesson: If you have little or no stock market experience seek out and listen to independent professional advice, before you start betting the farm on a hot tip. If you do you'll find the stock market is no more risky than any other form of investing. But you must understand how it works, you must be educated. Reading through our Grow Your Wealth archive section is a great place to start.

When you need advice, we are always ready to listen and help. Give us a call (07) 4771 4577.

PS. If this story sounds familiar, try investing again, but this time, seek out advice. Avoiding shares due to one bad experience will cost you more money long-term then you lost the first time.