Investing in the stock market has always been an effective way to build wealth. In today’s low interest-rate environment, it has become a necessity.
Since the Great Recession in 2008, the Federal Reserve has kept short-term interest rates—called the “federal funds rate”—mostly near zero. That means the traditional ways of saving your money and watching it accrue—certificates of deposit, money-market accounts, Treasury bonds—are no longer viable. Investing in the stock market is one of the few viable ways to have your money work for you these days.
Of course, stock market investing comes with more risk than a safe, low-yield savings account. Inevitably, not all of your investments will be winners.
In investing, no one really knows for sure what’s going to happen. Over time, however, stocks tend to rise. History tells us this. Since 1928, the average annual return in the S&P 500, the benchmark U.S. stock index, is 10%. So historically, the average stock rises 10% per year.
Successful investing is largely dependent on market timing. You can’t just buy any stock and assume it will turn a profit, much less return 10%. You have to buy the right stocks at the right time.
For example, if you bought stocks in 2018 and sold them at the end of the year, you probably didn’t fare so well. The S&P 500 was down more than 6% that year. However, if you bought stocks at the beginning of 2019 and held on to them through 2021, you probably made a lot of money. The average annual return from 2012 to 2014 was more than 23%.
But, of course, your return would have depended on what stocks you actually bought. Take Facebook (FB), for example. The largest and most recognizable social media company in the world has been one of the best-performing stocks of the last decade, but it was down after its first year of trading, despite the market being up during the same stretch.
That kind of unpredictability scares some people away from investing in the stock market. The track record over time should be enough to convince you otherwise.
The stock market is a vast and ever-evolving place, and there are many ways to approach stock market investing.
Want to invest in safe companies that offer a steady stream of income? You’re probably a dividend investor.
Are you willing to take on a bit more risk to go after bigger, faster rewards? Growth investing is likely for you.
Value investing is for investors who like to bargain shop.
Options trading is for those who like to invest based on statistical probabilities. And so on.
At Cabot Wealth Network, we have something for every investor. We publish 15 investment advisories that cater to various types of risk tolerances and timetables, depending on your preference. Since 1970, we’ve been helping investors of all experience levels achieve market-beating returns, helping our readers double their money more than 30 times over.
When done right, investing in the stock market can be a hugely profitable endeavor. For more than a half-century, we’ve been helping investors maximize those profits—and hope to continue doing so for another 50 years.