on May 22, 2018
There are MANY ways to invest your money, some more risky than others. You could sock your spare cash into a savings account or CD. You could become part of a peer-to-peer lending program or invest in real estate. You don’t necessarily have to invest in the stock market, but it’s a great way to multiply your hard-earned dollars IF you approach it the right way.
Why bother with the stock market in the first place?
According to CNBC, the average annualized total return for the S&P 500 index over the past 90 years is 9.8%. Over the past 20 years, inflation has gone up by an average of just over 2%. That means the stock market, on average, is well outpacing inflation.
How does that compare to other investments you can make?
- The average savings accounts is averaging a paltry return of 0.06% APY, which doesn’t even keep up with inflation.
- Real estate investments can be risky and comes with ongoing maintenance costs.
- CD interest rates are currently at about 0.59% for a one-year CD (again, not keeping up with inflation).
- Playing with credit card rewards programs (some people consider this investing!) can be risky and has the potential of ruining your credit.
I could go on, but that gives you a sampling of what’s out there and what you can expect in return. To me, investing in the market is a no-brainer. I do not, however, believe in a short-term “gambling” approach.
So, what is the right way to invest?
1. Think Long-Term
Your relationship with your stock portfolio should not be a short-term fling. Think long-term: regularly add money to your portfolio and LEAVE IT ALONE until you retire. Then, tap into it sparingly so that you don’t deplete your hard-earned funds too quickly.
Markets may be “off” on a given day (or even year), but they tend to correct themselves with time. If you’re jumpy and pull your money out of the market at the first sign of bad news, you’ll be constantly trying to play catch-up. Instead, ride the waves and remember that over the past 90 years, the stock market has trended up.
2. Spread Out Your Investments
I believe in diversifying your portfolio because it works. Investing in a wide array of companies in a variety of industries helps you avoid some of the turmoil certain sectors of the market might face (think the “tech bubble” of the ‘90s or the “real estate bubble” of the ‘00s*). Diversity equals robustness.
3. Don’t Be Nervous
Jumpy investors watch the market like a hawk and pull out all their money when they see the slightest decline in numbers. Don’t be that person! If you have to, stay away from daily stock reports and resolve to only check in every week or every other week. And when you DO check in, remind yourself of the long term market trends, keep calm, and carry on without withdrawing your investments.
Keep in mind: Your investment will never drop to $0 unless all the major companies in the world go bankrupt…and then we’re talking about an apocalypse scenario and you’d better know how to farm!
4. Ask for Assistance
You’re not expected to be a stock market expert—that’s what your financial advisor is there for! If you’d like some guidance on where to invest your money, please call up your advisor today. Work with someone you trust, who will lay out your options with clarity and transparency.
Right now is a great time to invest…but really, any time is a great time to invest. Just diversify, think long-term, and keep a level head. And remember, you don’t have to do this alone. Your financial advisor is there to help.
*Note that these areas of the market have always corrected themselves over time.