Statistically speaking, if you want to accumulate wealth over the years, the best option is to invest in stocks. However, the reservation remains that this form of investment is like a game of chance, says market expert and author Andreas Lipkow. The former stockbroker, investment banker and trader describes in the interview how the so-called game of chance is suitable for accumulating promising capital.
Question: Why do some people have the prejudice that investing in securities is pure gambling?
Andreas Lipkow: Because, in reality, trading on the stock market is a kind of game of chance if approached naively. A market participant's attitude and prior knowledge determine whether his investment is gambling or systematic. But this applies equally to most other asset classes. Even supposedly safe forms of investment can turn into a tragedy. For example, I am often surprised by how unprepared some people are when it comes to purchasing real estate.
Question: But how can you generate wealth by investing money in the stock market?
Lipkow: To generate wealth in the stock markets, I have to know the risk and act consciously in the markets. This sounds trivial, but so is the stock market. Once a deal is done, it's done. Then there is no explanation. Therefore, you should consider the risks and return potential of the respective asset class in advance. So I must know what benefit I want to obtain, how much time I have for it and what risk I am willing to take. On this basis I can decide if, for example, I should invest in stocks or if I prefer to invest in bonds or more conservative financial products.
You should also research the companies in which you want to purchase shares. What do they do, how are they different from other companies, what influences are they subject to and what potential still exists? I don't need to be an analyst to make this evaluation. It is usually a good way to perceive the environment with open eyes. Maybe there are products that work like hot cakes or impress with their great technology.
If I realize during this process that it's not for me, I shouldn't invest. Because the moment I enter the market, I have to prove myself in front of a horde of know-it-all investors.
Question: What happens if I decide to invest? What mistakes should I definitely avoid?
Lipkow: You definitely have to avoid having too high expectations. In general, it can be assumed that in the long term returns of six to eight percent per year can be earned in the stock markets. If you have more, great, then maybe you've done something right. But that is not the rule at all.
What I wouldn't do either: put X amount into a single stock and expect it to increase in value. This may work well, but it is not necessary. Therefore, capital should be distributed more widely if possible. With this knowledge, you often end up with ETFs (editor's note: exchange-traded index funds). But it's not clear that everyone is happy about it.
And last but not least: If you already work 40 to 50 hours a week as a doctor, lawyer, tax advisor or specialist, you should not try to be a day trader: one of the two jobs will fall by the wayside.