Unravelling the Stock Market

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For new investors, it’s easy to feel that the stock market is a black box which is hard to understand. But that’s not entirely true.

Almost every country with a functioning financial system has its own stock market. In Singapore, stocks are traded in exchanges which are run and managed by Singapore Exchange Limited (SGX: S68). If you are new to investing or even someone with experience, please read our special FREE report titled “What Every New Singapore Investor Needs To Know”. It is a quick 5 to 10 minutes read on what’s really important about the stock market.

With the report providing some background on the basics of investing, let me now try to bust some myths about the stock market.

Myth 1: The stock market is dangerous

It’s not uncommon at all to hear about people falling neck-deep into debt due to their stock market adventures going awry.

However, if we are investing in stocks purely with our savings, it is not possible for us to fall into debt from losing money in the stock market. The most we’d lose would be the entire capital we’ve put in.

The only way for us to be mired in debt from stock market losses would be to invest using leverage (i.e. the act of borrowing money). Leverage is a double edged sword that can magnify both our gains and losses.

So, the truth about a dangerous stock market is that it is leverage which is dangerous to those who do not understand it, and not the market itself.

Myth 2: Properties make for much better investments

Properties, like shares, are just a different asset class to invest in. There are times when properties will outperform the share market and there are times when the share market will outperform properties. One is not better than the other- they are just different.

In fact, companies such as Jardine Strategic Holdings Limited (SGX: J37), Genting Singapore PLC (SGX: G13), and Singapore Exchange have all managed to achieve total returns of more than 1,000% for a period stretching from 2003 to August 2013. In roughly the same time frame, the Singapore Property Price Index has not even doubled.

Foolish Take                                                                                                                

It can be nerve-racking to explore new things – and with real money at stake, the stock market can even be seen to be doubly nerve-racking. However, once you get pass the initial fear of exploring the stock market, you might even get to see the beauty that lies beneath, the beauty of the stock market being an avenue which can help you build lasting long-term wealth.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.