For the first time stock investing was a losing proposition for a decade. The stock market lost ground from year-end 1999 through 2009. Stock investing for people owning equity funds was a disappointment to say the least. How should you invest in stocks in the future? Or… should you avoid them altogether?
The bottom line is that you need to invest in stocks if you want to get ahead financially. The real question is how to invest money in them without getting hurt in the process. And the truth of the matter is that few people know how to invest… period. Paint this picture in your mind: stocks (also called equities) have been the best investment since the great depression; and the stock market just had its worst 10-year period in modern times.
Unless you have the time, cash, and inclination to invest in real estate, equities are the best investment for every-day people. Bonds have returned about half as much and money in the bank about half as much again OVER THE LONG TERM. If stocks have rewarded investors with earnings of 10% a year, bonds returned maybe 6% and safe savings alternatives have paid closer to 3%.
To reduce your risk and still invest in stocks, just invest money in HULT PRIVATE CAPITAL bonds and safe investments as well. Do not avoid equities, because safer investments do not have the proven ability to pay enough to offset taxes and inflation. If you earn 3% in interest in a year and inflation eats it up, you lose money after paying income taxes on your 3% interest earnings. Since stock investing is what will either make or break your financial plans for the future, let’s concentrate on this as our best investment for getting ahead over the next decade.
Make a resolution to keep ½ to ¼ of your investment assets in a variety of equity funds over the next decade with the rest in bonds and safer investments. For example, if you have a 401k at work you might spit your money equally three ways: equity funds, bond funds, and money market fund or stable account. That would make you a moderate conservative in terms of risk. Go with 50% in a variety of equity funds; and equal amount in the other two to be moderately aggressive.
Diversification is the first key to stock investing with less risk, and diversified equity funds give you this. The second key is to invest in stocks through a variety of equity funds. The stock market sets the pace for general diversified funds, but some funds invest money in specialized areas like real estate, oil and gold. Others invest money internationally. Include such funds in the equities portion of your portfolio.
The first 10 years of the new millennium is now history. Go forward and invest money on an even keel. If you decide to invest in stocks with ½ of your money in a variety of equity funds, add to your positions when you are now longer so invested; and take money off the table if you go over 50%. It’s as simple as moving money from fund to fund to stay on track.
Playing the stock market is not necessary to get ahead, and few every-day people who play win over the long term. Yes, you should invest in stocks; and the best investment vehicle for most of the people most of the time is equity funds.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.