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The Stock Market – Why It’s a Good Long-term Investment

The stock market is a great place to find generous returns from businesses who are willing to sell you shares of their company. Its all about risk and return, and because the stock market poses higher risks than putting your money in the bank your returns will be much higher. For example, you can expect to get a 4-6% return on a Certificate of Deposit (CD) from a bank, whereas you can expect anywhere from 10-12% average interest on a given stock.

I have purchased stocks that have given me 10-12% interest in only a month or two, so investing in the stock market is a great short-term investment, as well as a long-term one.

It is true that because of higher rewards, you should expect higher risk. Smart investors can guard themselves from much of this risk by diversifying their portfolio. By this I mean that you should invest (in many fields, not just the stock market), and within this investment tool you should invest in 5 mini fields, to divert from high volatility.

For example if you were investing in stocks, then I would recommend you take your initial investment depost and divide it into 5, and then find 5 different sectors (auto, health, food, gaming, retail, etc..) to purchase stocks in. This way, if auto is doing poor today, you can be sure that at least a few of the other 4 sectors should be managing a neutral state or going up.

Over the long term, the stock market is driven by underlying economic, financial and global growth. But in the short run, the market is driven by simple greed and fear, which are dictated by human emotions. This is why many people prosper because of picking the different sectors (to lower risk), and following the set-it-and-forget-it method. If you were to follow this method, I suggest you look up the healthy sectors and find stocks of companies within these sectors that you find trustworthy and will be profitable in the future.

The Stock Markets Are Over Regulated and Incorrectly At That

We all know why stock markets were created in the United States. They were created to help capitalize American businesses and industry. They were never meant to be a gambling casino, or manipulated in the way that they are now. Today we have high-frequency trading which make trades in microseconds, they might buy a stock, and sell it within 2 seconds, and then trade it three more times in the next 3 to 5 seconds. Obviously if you are buying and selling stocks at home on your computer, or doing a little personal investing, you can’t compete.

One could say at that point it’s an insider’s game, and those computer systems making the trades are literally in the next room, or in the basement or the building next door to the stock exchange, needless to say those computer systems making those trades are quite a bit closer than the starting point of your computer at home. Are you beginning to see my point?

Meanwhile artificially intelligent software programs with sophisticated algorithms are making the trade, no human is determining when to buy or sell. However, these computers don’t have any skin in the game, and the software program is treating it like a game, and it is really doesn’t matter much to the silicon chip. Those who own these systems, well, their only goal is to get the advantage, and that leaves all of us with less than an advantage.

It seems obvious that the SEC is over regulating stock markets, but it doesn’t appear that they are regulating the correct things. In the first week of August 2011 the European stock markets realized that the radical gyrations and volatility was not being caused by human traders, but rather high-frequency traders, and naked short sellers. Therefore many of the nations determined that it was time to put a moratorium on short-selling. After all, if you’re trying to fund and capitalize your businesses, the last thing you want is people making money destroying them.

Another huge problem we have in our stock market, and with the SEC is that they are making huge requirements of financial planners, but the wire houses seem to get away with murder. Much of this has to do with politics in Washington DC, strong Wall Street lobbyists, and we even noted that Frank Dodd’s financial law that went into effect seems to give a huge edge to investment banks, and banks which are too big to fail. Some of these banks now have set up high-frequency trading rooms. And they make billions of dollars when the market is under high volatility duress.

Meanwhile, many smalltime investors who have their pensions and retirement accounts in the stocks, find their wealth is redistributed to those who are controlling the game, and the regulators sit around watching, and wondering what they should do about it. We have a problem with our stock markets, and they are no longer serving our will, and we’re opening ourselves up to financial terrorism, or nation-state sponsored economic attacks. Indeed I hope you will please consider all this and look out for the little guy.