I've always thought the stock market was legalized gambling. Is it really a safe way to invest my money?

The stock market is a safe way of investing your money if you are smart about it. There are more and less safe ways to invest depending if you intend to invest long term or short term. Investing works like this:

High Risk Investing = Higher possible returns + Higher possible losses
Low Risk Investing = Lower possible returns + Lower possible risk

Stocks vs. Bonds - The biggest risk in investing in stocks is that a stock is not a bond. A bond is a loan or a debt that must be repaid at a certain point in the future. A stock on the other hand, holds no obligation with it. Once you buy a stock you may never see that money again. The company in which you are now a shareholder owes you nothing. As a partial owner in that company, you get to share in the companies successes but only if they decide to distribute dividends or if the company dissolves. You take a risk with your money and have to accept that you may never see your investment again. A bond, on the other hand, is a guaranteed investment. You will be paid back at least the amount that you invested. Bond holders have a higher claim than stock holders. This means that if the company dissolves, bond holders are entitled to their portion of the remaining assets before stockholders are.

Ride out downturns - The stock market is changing all the time. You're stock may be doing well one day and doing poorly the next day. The thing that you must keep in mind if you are to make a return on your investment is to ride out the downturns. This means, do not become discouraged and pull out your stock every time your stock goes down few points. When you leave your money in the stock market for at least 10 years your stock is more than likely going to increase in stock. The market is improving overall, but you have to be willing to wait to see the big picture.

Money market funds - Money market funds are low risk, lower return investment options. Money market funds include such things as government securities and Certificates of Deposit. Money market funds typically pay out very small dividends. However, with a money market fund your risk is rare. Money market funds are better for short term investors because the dividend payouts are more frequent and predicable (however low they may be). Money market funds typically start at $1.00 per share.

Index fund - An index fund is a way to manage your stock investments by trying to replicate the movements of specific market. An index fund such as the S&P 500 or the Wilshire 500 works with (in these cases) the stock of 500 companies and averages their performances. With such diversity combined with the overall upward tendencies of the market, your risk is relatively low. If one of 500 company's stocks does poorly, you still have 499 stocks to fall back on.

Inflation could be more risky - Perhaps the most compelling reason to invest in the stock market is that you may loose more money by doing nothing at all. Inflation is increasingly decreasing the value of the dollar. The stock market allows your dollar to grow with inflation as the market value increases. Leaving your money in a shoe box under your bed because you are afraid to loose it will, over time, yield the very results you are trying to avoid.

The stock market may seem like legalized gambling, but it is in fact one of the safest ways to insure that your money and investments grow.

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