Money
The Danger of Playing the Stock Market !
By Jason Cunningham
Mar 21, 2008 - 4:28:05 AM

Unlike a fixed annuity or guaranteed interest rate offered on a savings account at your local bank, you can gain or lose all of your money when you buy and sell stocks, in many instances. While it might be appealing to gamble your savings on the stock market, there can be serious consequences if you guess wrong. Therefore, it is usually not wise to put your emergency fund or future retirement income at risk by “day trading” or trading stocks that are labeled as risky investments.

Any stock has the potential of decreasing in value. Likewise, the stock can also increase in value. When people show more demand for a stock, its price is likely to increase, while it might decrease in value if sellers of the stock have a difficult time of finding buyers at a specific price. Many factors may contribute to a sharp increase or decrease in the price of a particular stock including economic data (i.e. PPI or overall GDP), earnings of similar firms within the same sector, or news or data concerning the company whose stock is being traded.

For others, the stock market is a place to gamble. These individuals are looking for sharp increases or decreases in the price of a stock. Unlike traditional investors, these people may hold the stock for less than a day. Often referred to as day traders, many of these individuals study trading patterns of stocks to determine whether to buy or sell them. Unfortunately, there is no way to predict the market or sudden movements in a stock price. Otherwise, we would all quit our jobs and become day traders. Some individuals have lost everything from day trading. So, remember that trading stocks can be an additive habit for some people. If you find yourself in this position, you might need to seek the help of a qualified health professional.

You can gain or lose money by trading stocks and other investment instruments. Most financial advisors caution individuals to invest only in sound companies and diversify their risk exposure across many asset classes based on their risk tolerance. By do so, you still can lose money; however you would not be heavily invested in one particular stock. On the other hand, day trading can be addictive and dangerous to the protection of your savings, including funds that will be needed during your retirement years.

*Disclaimer: This article does not constitute financial advice. Always consult a tax advisor or financial advisor when making investment decisions.