Stock Market Basics for Beginners Safe Havens and Stability other than Gold and Treasuries

Stock markets around the world have been in the headlines during the summer, for all the wrong reasons. Due to increased uncertainty and a lack of confidence in global markets, a huge amount of money has been flowing out of equities into perceived safe havens such as gold, cash, and US government treasuries. If you are thinking about jumping into the market, or learning about stock market basics these downward trends may be unsettling to you.

 

One of the most important stock market basics for beginners to be aware of is that all markets are highly unpredictable in the short term. Because there are many market-changing economic events on the ground occurring at a rapid pace, some investors may pick up on a piece of bad news and find reason to panic. Psychologists describe this as classic irrational behavior which will result in a lower or higher price for stocks than reflect the true value.

 

If you’d like to minimize your exposure to irrational behavior by investors, there are specific sectors and industries which are less exposed to the erratic behavior of the market.   

While not the topic of conversation at cocktail parties, utilities like water and electricity companies often make excellent investments that let their shareholders sleep at night. A great example is NextEra Energy, Inc. which is traded on the New York Stock Exchange. This is a well capitalized company that issues a generous dividend each quarter and trades in a $4-$6 range offering lots of stability for investors who have a standing order and use dollar cost averaging. To find other promising energy stocks use the Stock Screener feature on Google Finance to investigate possible investment opportunities.

 

Though it is tempting to simply take your money out of the market and keep cash in the bank or under the mattress, this is not a good long term financial strategy. Current US and European government policies and debt problems will lead to a long term devaluation of both the US Dollar and Euro. Investing in less volatile stocks such as those found in the energy sector is a way to avoid this deflation trap.