Investing 101; Be Confident
I’m not the best investor in the world; we’ll get that out of the way now. And when you look at what’s been happening to the market lately, where the smallest bit of bad news seems to send the markets tumbling, it doesn’t give you the warm and fuzzy feeling of confidence.
And yet, according to financial experts, investing over the long haul is one of the safest ways for you to not only make money but to help save your money. How is this possible, you may ask? Here’s the quick down and dirty of it all.
First, you get into a money market type of account, where your investments are spread out among a lot of companies. What this does is protect your investment if one company starts to tank, and gives the person handling your account time to switch you to someone else more stable.
Second, say you started out with $500 in your account, and for the next 35 months you put $100 a month into your account. And then say that ever other month the market increased 1%, and on the opposite months the market fell 1%. At the end of 3 years you’d have made $18 and change; that’s not very good, but at least you made money.
Then say that you started out with the same money and added the same amount monthly. Investors say the market makes money at a 10 year rate of around 2.5%; I don’t know if they all agree to this but an investment guru gave me this one so I’m using it for now. Then say I do the exact same thing as I did above, only instead of the 1% increase every other month it’s 2.5%, and yet I still have that 1% decrease. At the end of 3 years you’d have made $565 and change; that’s a little better.
But the market doesn’t really work like that, up and down from month to month. It works in stages. For every six months up you’ll have six months down, yet you’ll still come out to that 2.5% gain after 10 years. We’ll do it a little worse than that. We’ll increase 2.5% for six months, then decrease 1% for six, just to be below that figure. You’ll still have made $447 and change.
The thing is, these are low figures overall. Your money market is probably going to return a higher amount than that 2.5% over time, even with the down times because they’ll drop the bad stocks and move to better ones. What happened in 2009 is more of a fluke than the norm, as it usually doesn’t drop almost 50% of its worth in a year. So, with more stability in the stock market, your money will normally increase faster than it will lose money.
However, it takes a lot of courage to invest long term and not touch any of the money until you absolutely have to. And you also have to be smart when you do decide to invest, making sure you’re not hearing about things such as what happened last year and not getting your money out or moved around in some fashion. I heard the news, wasn’t paying attention, and lost more than 60% of my portfolio at around the same time the company my broker was working for changed how my account would be handled, and he was suddenly not there, which I didn’t know. I removed my funds, but I was a little late on it all.
So, if you have the courage and confidence to leave your money alone for the long haul, and can continue popping at least something into it, you could turn out all right, as long as you pay attention to what’s going on in the world.