5 Reasons For Investing In The Stock Market
A lot of people are afraid of investing in the stock market. And I can understand that. Especially with the S&P 500 currently hovering at record highs. However, there may be some compelling reasons to invest in the stock market.
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Following some simple rules may help you be a better investor. So before you invest in stocks, check out these 5 reasons. I summarize them below:
#1 You need a fighting chance against inflation – Your retirement can last up to 30 years and beyond. If you retire at age 65, it is not uncommon to live to age 95 or older. You need to plan for a time horizon of at least this long. During a 30 year period inflation can have a big impact on your purchasing power. If you are not keeping up with inflation you are losing purchasing power. Investing in stocks may give you the potential growth you need to have a fighting chance against inflation.
#2 Market risk is not the only risk – Market risk is just one of many different risks. You also have to consider longevity, which is running out of money before you die. You also have to consider purchasing power risk, which is the risk that inflation will outpace the growth in your investments. If you do not get sufficient growth out of your portfolio you have a higher likelihood of losing purchasing power, as well as running out of money.
#3 You can custom tailor your portfolio to your risk tolerance – You can tailor make your portfolio to suit your risk tolerance. You don’t have to invest only in stocks of individual companies. You can invest in an index of the S&P 500 for diversification. But you can actually diversify further by invested in indexes of other asset classes, like bonds, REITs, commodities, or international stocks. You can allocate more of your portfolio to less volatile asset classes like bonds if you are more conservatively minded.
#4 The proper investing rules can help you invest better – You need to have the right investing rules in place to help you make non-emotional decisions. Don’t let your emotions control your investment decision making process. This can be bad for your portfolio. But if you put the right rules in place they may help you make better investing decisions.
#5 Stock investing can provide the potential for growth in your portfolio – You can lose money in stocks. We all know that. But you also have the potential for growth too. From 1970 to the end of 2013 the S&P 500 had a cumulative average growth rate of 10.40% (source: http://retirementplanningmadeeasy.com/wp-content/uploads/2014/11/SP-500-returns-from-Wikipedia.jpg)
On average that’s how it performed. Some years were much worse than that, and some years were better. But on average the S&P 500 grew at that annualized rate. That’s not to say it is smart for you to just buy and hold an index of the S&P 500 exclusively in your portfolio. But it does show you that the potential for growth is there in the markets. Growth that is still important for retirees who may be retired for up to 30 years and beyond.
These are just some of the reasons to invest in the stock market. And really we have gone beyond just talking about investing in stocks. We have also discussed how other asset classes could be used in your portfolio in addition to equities.
But for retirees (and those nearing retirement in the next 5 to 10 years) it is very important to make do the best you can with your portfolio. That’s why I have put together a free 3-part video series called ““6 Ways The Wealthy Manage Their Investments That Ordinary Investors Do Not.”
To get instant access to this very helpful video series, check out http://retirementplanningmadeeasy.com/wealthy-investing
Christopher Hammond is an Investment Advisor Representative with Retirement Wealth Advisors, Inc. (RWA) 501 Baldwin Street, Suite 203, Jenison, MI 49428. (800) 903-2562. Tri-State Financial Group, and Tri-State Insurance & Financial Services, and RWA are not affiliated.