Investing in the US stock market, over the course of a lifetime, has historically been a financially fruitful way to grow your money. While annual returns vary, sometimes wildly, you can expect, on average, over the course of your life, about a 7% yearly return after adjusting for inflation.
Financial advisors generally offer a few rules of thumb to maximize your returns:
- During good times celebrate, of course. But also be alert too. When stocks are running high remember, the near-term is likely to be less good than the recent past.
- During bad times celebrate as well. Why? Because your future returns, invariably, will look better than they do right now.
- Arguably the most important one – stay in the stock market. You only get those great lifetime returns if you stay in the game. Study after study shows that cashing out of the market lowers returns, long term, sometimes drastically so.
Many of us lived through stock market highs and lows earlier this century with the Great Recession. In early 2008 the Dow Jones was over 13,000. After a series of high-profile bankruptcies and high levels of home foreclosures, by the end of that year, the Dow had dipped below 8,000. Stocks had lost almost half their value in less than nine months.
I remember hearing of friends pulling their money out of the stock market during that historic low. My wife and I opted to stay put and stayed invested, hoping for brighter days ahead. So glad we did. Because come back the market did, as always.
And that’s about all we’ll talk of the stock market in this message. My hope is to keep at last a few of you at least somewhat awake
Share with a friend