Journalist Matthew Amster-Burton has some intriguing insight about the stock market that may affect your financial situation.
Here’s what we found from his Facebook feed:
“Why bother anymore? The stock market, even mutual funds, struggle for a constant 3-4%, nothing like the 6-10% like it used to be.” – Ryan
Matthew Amster-Burton’s response:
The stock market sure seems to be all over the place lately, doesn’t it? The S&P 500 was down 37% in 2008, up 26.5% in 2009. Up a lousy 2% in 2011, then up 16% in 2012. What happened to the good old days when the stock market returned a steady 6% to 10%? Easy: they never existed. Volatility and long-term bear markets are a standard part of stock investing.
One of the worst bear markets in US history lasted from 1968 to 1982, when stocks went basically nowhere for 14 years and people talked about the “death of equities.” At the same time, bull markets and a long-term upward trend are also a standard part of stock markets.
The answer to “why bother?” is that stocks have been a pretty good bet more often than not: people who invest in stocks, stay invested in good times and bad, rebalance, and keep management costs low, usually make considerably more money than those who keep all their money in bonds or other safer investments. And that “usually” is exactly why people tend to make more money in stocks. They’re being compensated for taking risks.
If stocks had a long history of volatility and bear markets and offered a historic return of 2%, few people would ever invest in stocks. So forget about the good old days. If you want stock market returns, you have to expect stock market behavior: the market will throw fits, go into long-term funks, and explode into manias and bubbles.
Why bother? Because most people want more from their investments than the modest returns offered by bonds and CDs, and a diversified stock index fund is the best risky investment out there.
Does the stock market have a strong future? Leave us a comment below or on Facebook (click here)!