Welcome to another edition of investing questions that most are afraid to ask. Today, the questions are a little more basic and will hopefully provide some good insight into how to go about investing if you are truly considering getting into it for the first time. Enjoy and please keep your questions coming here!
What is considered a “good” return for investors who are not professionals?
The stock market has been in existence for over a hundred years, and over this time the stock market has manifested an average return around 10%. When adjusted for inflation, it has been shown that stocks could double your money in about 10 years at the average rate of return for the long-term. Ultimately, if you invest for yourself you should set a goal to earn returns over 10% per year on average to be considered “good.” Don’t feel bad if you don’t get it right every time; long-term growth is not too difficult to obtain.
I hear a lot about “ETFs” on television; what are these and why should I be interested in them?
ETF stands for “Exchange-Traded Funds” and they combine the flexibility of a stock and the low costs associated with a mutual fund. Unlike managed mutual funds, ETFs trade on stock indices and constantly move in conjunction with the market, meaning that you can buy and sell at a certain price. On the other hand, a mutual fund only allows you to trade it at the end-of-day closing price. Ultimately, ETFs come in a variety of indexes and sectors, so make sure that you understand the overall goal of each individual ETF. For smaller investment amounts, a mutual fund is probably a smarter bet if you are investing smaller amounts of money. It’s also a good option for rolling over an individual retirement account (IRA) or an old employer 401(k) plan so you can put money to work right away.
What exactly am I missing out on by not investing in the stock market? Is there really any proof that buying stocks will make me any money?
This is a really great question! The answer to both of these questions really depends on a number of factors. There are no guarantees in life, just as there are no guarantees in investing. Many forces on a daily basis impact the markets; these include but are not limited to corporate earnings, consumer emotions, political events, terrorism, economic data both domestic and international, and natural disasters. Historically speaking, between 1926 and today, the S&P 500 has returned an average annual gain of roughly 10%. For long-term investors who have the wherewithal to face risk and can ride with the fluctuations of the market, most experts agree that the stock market is the best place to grow money over the course of your lifetime. Note that Social Security is NOT something you should be relying on for the future and for a comfortable retirement.
Greetings, GradMoney Readers!
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