Why You Should Invest In Stocks
March 18, 2020
We know, you’re a savvy investor and you already know everything there is to know about stocks. In most cases, you’ve either put a lot of your money in stocks, trusting in the power of the almighty free market, or you’re shying away from stocks, fearing the instability and unpredictability of the market’s whims. Either way, there’s more to learn. Let’s dive in.
Unmatched Rate of Return
Unless you happen to be really good at your March Madness bracket every year, there’s basically no faster way to grow your money in the medium and long term than the stock market. All else being equal, you can expect a rate of return of around 10 percent on stocks, which is two to three times better than most other investment vehicles.
Keep in mind that’s the “headline rate.” If you put $100,000 in a brokerage fund, you might have $110,000 a year later, but inflation will reduce the spending power of that money by 2–3 percent every year, so your real return is around 7–8 percent.
If you’re going to put money in stocks, you should be prepared for big short-term rises and falls. Just in the last couple of decades, we saw the Dow Jones Industrial Average (DJIA) fall more than 50 percent in 18 months during the subprime mortgage crisis, only to bounce back within another two years. It rose 3,000 points in the months leading up to President Trump’s inauguration, then fell 2,500 in the week after.
Let’s talk numbers. Generally speaking, the stock market will rise in two-thirds of years and fall in the other third. Over a long enough period of time, you can expect virtually guaranteed gains — the DJIA has virtually never sustained a net loss over more than a decade — but in the short term, your portfolio might lose 60 percent of its value in a single bad year.
Young and Aggressive
The longer you can afford to leave your money alone, the more aggressive you can be with your portfolio. If you’re 40 and you plan to work for another 25 years, you can invest most of your money in stocks because the good years will iron out the bad years over time. If you’re planning on selling your positions in 5–10 years, it might not be worth the risk of one bad year undoing all your gains, so bonds are a safer bet.
Seize Opportunities When You See Them
One last thing to remember: your losses aren’t real until you sell. You might wake up and check your investing app, panicking over the fact that you’ve “lost” tens or hundreds of thousands in the last week, but it’s ok — put the phone down and take a deep breath.
Even the worst crash in recent memory — the 2008–2009 subprime mortgage disaster — recovered to its pre-recession levels in less than three years. If you’ve diversified well, you can afford to weather the storm of a bad stock year or two.
In the meantime, smart investors will buy up the cheaper stocks and index funds that panicky investors are dumping, stashing them to reap the rewards when the market bounces back.
Talk to First Western Financial
If you’re ready to get serious with your financial future, your goals, and your legacy, make an appointment with an advisor at First Western Financial. We’ll explain everything you need to know, tell you where your money will serve you best, and get you on the right track to living the life you want. Other financial advisors might lump you into a box based on your age and income, but we know better than that — following’s not really our style.
Investment and insurance products and services are:
- Not a deposit
- Not FDIC- insured, are not insured by any federal government agency
- Not guaranteed by the bank and may go down in value.
- First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.