If you have invested in the stock market during the past decade, your mettle has almost certainly been tested. With the Great Recession came days and months of wild market swings. Seasoned investors have seen their retirement portfolios take significant hits and younger investors have been left with a taste of distrust in their mouths.
This latter point is bared out in a recent UBS study that reveals that Millennials have over 50 percent of their savings in cash, with a mere 28 percent in stocks. The desire to avoid risk aside, having so much concentration in cash and little exposure to the stock market can make attaining mid and long-term goals difficult, if not impossible, to accomplish. This is where having the right perspective is key.
Over the Long Haul, the Market Rewards
Having the right mindset when it comes to investing is key. You should expect the stock market to move up and down. You should also expect it to reward you if stay in it for the long haul. Consider the following statistic – the market returned an average of just over ten percent in the 20th Century. In fact, the only losing decade was the 1930’s with a return of -.63 percent.
Even in the tumultuous 2000’s, the market had a positive, albeit minimal, return. Yes, being in the market does open you up to risk of loss. It does mean you’ll likely experience days of significant loss. However, nothing is without risk. By keeping such a huge percentage of investable assets in cash it not only causes loss due to inflation but it also carries with it the risk of not accomplishing your goals or retiring on time.
Other Options to Grow Wealth
Investing in the stock market isn’t the only way to grow your wealth. There are many options from investing in yourself to real estate and everything in between. As you’re considering investment opportunities, it’s important to remember to do your homework ahead of time. Just because someone else has been successful with a particular investment, doesn’t mean that you will be as well. Real estate, for example, has the potential to be lucrative, but what is often overlooked is the extra work it creates–like dealing with maintenance issues, lack of liquidity and taxes, just to name a few things. When it comes to investing, in general, smart diversification is key; establishing multiple revenue streams through the stock market, your job and other avenues reduces your overall risk.
One popular alternative to the stock market is Peer-to-Peer (P2P) Lending. The main sites for P2P lending, Prosper and Lending Club, boast returns of anywhere from 5-10 percent depending on the risk level you take. However, what gets lost in that is the risk of default. While vetted by the given site, you are still loaning money out to individuals – and have no real assurance that you’ll be repaid in full. A comparison of inherent risk makes clear that the stock market is a much wiser choice. This is because when you invest in the stock market, you’re not investing in a sole individual, you’re generally investing in a company where much more information is available to help you make an informed decision.
Another popular option to the market is investing in yourself, or growing professionally so that you can positively impact your ability to earn more money. While a wise thing to do, it is hard to quantify the earning ability you’re going to get by avoiding the market for the sake of self-improvement.
Perspective is Key
Life is best when lived in balance. It can be difficult to keep that perspective in mind when the market has been rocky. You must also consider that the stock market has roared back over the past few years, leaving those who stayed in it for the long haul sitting well.
Taking a look over the past century, the stock market has proven that it can be trusted. Blips aside, the market rewards those who are in it for the long run. This must be taken in light of the kind of life you aspire to 20, 30 or more years down the road. Many Millennials are confident they will be able to live the kind of lifestyle they want in later years, but that requires exposure to the stock market to accomplish.
Investing in the stock market isn’t without risk. However, historically speaking, it is one of the best tools to help grow your wealth and accomplish the goals you have in life.
By John Schmoll, Staff Writer