L Bee Says: It has been a good ol’ HOT minute since we’ve had an investing piece, and luckily my friend Lee, offered up his wisdom to share. He’s a new blogger, so be sure to check out his site or say hello on twitter!
Laying a foundation for investing in stocks is the most important thing you can do when you start. You may have been at a dinner party and heard some advice on what stocks to buy or what ones to sell. The news may be telling you to buy, buy, buy, or sell, sell, sell. You hear so many things, but may not know where to start or whom to believe. That is me. Some things that I do know I am going to share with you and they should help you lay a foundation for investing in stocks.
When & Why You Should Buy Them
1. When you are investing for the long term.
Stocks have averaged close to 10% over the long term. This is the best investment out there when considering the return you get for your money over the long term. Compare this to long term U.S. Treasuries (bonds) which average a little over 5% per year. Let’s do a quick comparison.
You invest $10,000 invested in stocks vs. bonds and then taken out 30 years later.
Easy choice here is stocks. You will have over $130,000 more money after 30 years.
2. If you are okay losing 40% of the money you put in stocks for a single year
December 12, 1914 stocks dropped 24.4%.
October 19, 1987, stocks dropped 22.6%
In 2009, stocks fell 39%
These number shows that the prices of stocks go way up and way down. So don’t invest money in stocks if you may need it next year to pay for a house or your child’s education because 40% of it may be gone. This doesn’t mean you shouldn’t invest in stocks if you are going to take your money out after one year, but your stocks should be a very small part of your total investment. For example, if you have $10,000 invested and you may need that $10,000 one year from now, only put $1,000 of it in stocks. It may lose 40%, or $400 which is quite a bit, but you can handle that loss I hope and that risk of $400 loss is probably worth the risk of having more money after the year is over. In the end, it is your choice, but always think in your mind, “If I lose 40% of my money that I have in stocks this year, will I be okay with that?”
3. If you want the safest investment you can find.
Stocks have never lost money over a ten year period.
Inflation does not hurt stocks over the long term as much as it does other investments.
4. If you want the easiest investment you can find
All you have to do is automatically set up contributions and go to sleep. You get to own part of a company and get the benefits of their profits and growth without doing any work. How amazing is that.
5. If you understand to not touch it.
Let your investment sit hands free. Many people sold stocks after the 39% drop in 2009. This is when they should be buying, but it is really difficult to know when to buy or when to sell. My advice is to not worry about it. Experts even get this wrong. The “set and forget” strategy of investing in the stock market is even better than most experts. So just ride out the bumps, some large and some small, as you slowly climb the mountain of growth. So go take action today. On second thought, just do nothing because that is the best action you can take when it comes to investing in stocks.
Lee Veldkamp is a 22 year blogger who is geeky about financial decisions. He is on a mission to inspire people to break the chains that are holding them back from freedom and he shares his own experiences and others on his website www.thevaluegeek.com.
Title..: Why You Should Choose Stocks
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