In a real case, a businessman who lost $200,000 applied for credit line from a few financial institutions to trade in stocks. In a few short years, he lost everything in the stock market. Inclusive of the original loss of $200,000 in the business, he had lost more than $300,000. Unfortunately, this is not an unusual case. I have seen quite a few similar cases recently. It is a real concern. I cannot emphasize more that the stock market is not a place for individuals to make a quick pile from.
Stocks and Foreign exchange products should not be taken lightly. These products have unique risks and characteristics. Only an experience investor or a professional advisor should attempt to purchase these instruments. Generally, financial institutions have made it simpler and less risky for a common investor to gain equity exposure. Instruments such as unit trusts and funds automatically diversify risks and have a professional fund manager applying his skills to manage the capital. For a start, investors looking to purchase equity exposure can learn about individual stock risks and adopt a long term attitude to stocks. I have written an article here.
Be very careful of investment scams and fraud. CPF investments churning are an especially damaging activity for a common investor. Read about churning here.
Just because the stock market has many dangers, it does not necessarily mean that you should avoid it at all cost. Depending on your financial situation and life cycle, you should own some exposure in the stock market. Without risky products in a balanced portfolio, beating inflation can be very difficult.
Certified Fraud Examiner
Vice President Society of Financial Service Professionals