Stock Market
Investing in the stock market has always been an effective way to build wealth. In fact, it’s consistently proven to be the most effective wealth generator over the long term.
And, with persistent inflation an ongoing issue and the Federal Reserve poised to cut rates sooner rather than later, investing in stocks may be one of the few places investors will be able to generate consistent, inflation-beating returns for their savings.
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, a well-diversified portfolio of stocks should allow you to just about double your investment once every seven years.
Now, there are periods where returns in the stock market underperform the average. Every few years we encounter corrections and bear markets, as we did in 2022 and 2018, and the years after the Great Recession and dotcom bust.
But over a longer time horizon, those off years are more than offset by the performance in bull markets. If you invested in the S&P 500 at the beginning of 2014 and simply held that investment, you would have weathered the 2018 correction, the pandemic sell-off, and the 2022 bear market. And you’d have generated 16.5% annual returns.
You wouldn’t think that, with a correction, a pandemic and a bear market, the last decade would be anything to write home about, but those numbers speak for themselves. Despite the fear and negative headlines, investing over the last 10 years has beaten the historical average by more than 50% each year.
But, of course, your return would have depended on what stocks you actually bought. Take General Electric (GE), for example. GE is an iconic American company. As recently as 2009 it was the largest company in the world.
But had you bought GE at the beginning of 2014, you would have lost 0.7% every year, and that’s assuming you reinvested your dividends. Without dividend reinvestment, your returns would have been even worse.
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. Our investment advisories cater to a variety 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.