For decades people have been told that investing in the stock market provides better returns than cash over the long term. Whilst this has been true in the past, with everything that has been going on in the financial markets lately, is this still likely to be the case? Should I still risk my money? These are questions I am going to explore.
You will have no doubt heard on the TV all the turbulence in the banking sector and in the Eurozone, it seems to have been going on forever. The truth is financial markets have always had these “panic” events.
One striking example is the great depression of 1929.GDP fell by 25% and markets crashed far more than they did in 2008. It took a long time, but the world recovered and recovered very well.
This to me is proof that capitalism works and can withstand any kind of collapse. In my view there is likely to be a lot of pain in the global economy which is weighed down by huge amounts of debt at personal, business and government levels. Though again these scenarios are nothing new and have always been recovered from in the past.
Despite all this, I believe the stock market still has many attractive qualities that it has always had including:
A better chance to beat inflation
As you are no doubt aware, the cost of many of the items we buy lately has gone up appreciably. By putting our money into CDs and other low yielding assets, we are actually losing money in real terms. Currently inflation is over 2% and many CDs pay less than 1%.
This means our money is actually going down by over 1% per year. I know it’s often a hard conception to grasp, people often say “It hasn’t gone down, I got an extra 1% from the CD.” Whilst this is true, you can’t buy as much with it..
How about retiring early?
If you invest wisely at a young age, it can give you a great chance to retire early. I won’t go into lots of heavy math here, for the sake of keeping things simple.
But did you know that if you put in $1,000 per year into stocks or other investments, and was able to generate 11% per year for 20 years , this would be worth over $65,000? If you did the same for 35 years it would be worth over $340,000.
Dividends alone are beating cash and possibly inflation
The stocks in the Dow Jones Industrial Average are averaging around 3%. This alone may be enough to match inflation or even beat it, depending on how high it goes in the future. Some companies such as AT&T are paying over 5% a year.
Many investments don’t have a huge time commitment
Whilst day trading obviously needs a big time commitment, many investments don’t. Buy and hold investing requires very little time. Once you have purchased the stocks, you literally just hold onto them for as long as the company has strong fundamentals.
Opportunities for some bargains
The stock market often presents some outstanding bargains. Personally, I like to invest after a big market crash. This takes a lot of nerve, especially if you are new to trading. However, buying at these precarious times has shown over the centuries to be the best time and the most profitable.
A final note
To wrap up, I feel I must say there are no stocks that are guaranteed to be safe and there no guarantees about future performance or dividend payments.
There’s always going to be risk involved, the value of your investments can go down as well as up as you are no doubt aware.
There are many advantages to investing in the financial markets as I have discussed above, but only you can decide if you are prepared to take such a risk with your money.
Are you prepared to invest your money at the moment?
This post is written by Karl who runs WiseStockBuyer