Long-Term Stock Investments Yield The Best Results
Anyone who lived through the dot-com crash of 2000 or the housing market collapse of 2008 is probably wary about investing. Bubbles and crashes are inherent in the market. Even in normal times, share prices go up and down; this is called volatility. Investing outcomes, however, are less subject to booms and busts than you might think. That's why investors who buy and sell on impulse are poorly served by the stock market.
Those who get in near the peak and get out near the trough, as many do, lose money. Stocks can have a bad year, and sometimes a bad decade, but if you're investing for the long term, stocks make more sense than any other asset.
Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School, says that historically (between 1802 and 2014, to be precise) stocks have offered better returns than bonds, gold, and certainly cash. His study shows that during the aforementioned time span, stocks have returned an average annual yield of 6.5-7%.
Time Is Money: Invest For The Long-Term
The best investors are like Rip Van Winkle. Once they decide where to put their wealth, they fall asleep for a while. Over 40 years, $10,000 returning an average of 7% becomes $149,000. Even people who invested in the Dow Jones Industrial Average at the peak of the dot-com boom and promptly went into a coma would have woken up about 50% percent richer in 2014.
Benjamin Graham (the man who taught Warren Buffett about investing) said that "in the short run, the market is a voting machine but in the long run it is a weighing machine." What does that mean? In the short run, investors vote for stocks based on emotion, but in the long run, business fundamentals shine through. Automated investment managers bank on the long run.
Automated Investment Managers Versus Today’s Financial Headlines
The benefit of an automated investment manager is that your assets are placed in the least expensive, most robust funds from the start, and they're balanced automatically as markets shift.
This is where FutureAdvisor comes in. Link your accounts to our evaluation engine, and we'll show you how stock market growth can help you over time.
Contrast this approach with the everyday commotion of the news sites and TV anchors crying out for your attention. You see loud headlines about one company's exploding growth, another's decline, the threat of higher interest rates or the promise of high-yield bonds. It's always something new, because they need to capture your curiosity. By shouting something different every day, financial news leaves a lot of investors confused, and confusion leads to bad decisions—namely, the churn of buying and selling. In the end, churning your investments is good way to lose sleep and money.
The hourly news doesn't discuss long-term trends because that would make for repetitive headlines, but long-term trends are all that should matter to you. Patience pays off in the stock market, so invest for long run and rest easy like Rip Van Winkle.