What are the pros and cons of trying to make millions in stocks and bonds?
The pro is that you eventually are going to be rich because stocks, on average, increase ten percent a year. Some years they can be down dramatically, but if you go back historically they have produced excellent returns. It's the kind of returns that you wake up one day and you say I've got a lot of money all of a sudden. The downside is, they do go down in the short run and you have to be willing to take that hit and stick with it. If you're always chasing, for example, Internet stocks and they take off one year and you put more money in there and the next year you're down and you're out there looking for the next hot thing, say real estate. That's a formula for trying to outguess the market, which is a bad idea. The thing to do is focus on diversification and having your money in a low cost mutual fund. There are ways you can limit your downside. One strategy you can employ is to use what is called a stop order and that way when you've bought a stock, you can say sell it if it gets to this price. By doing that you can insulate your losses because companies do go bankrupt and stocks can go to zero and you can lose all your money. And also you can lock in a certain profit on the upside, if you're lucky enough to get that.
