3 Reasons Why You Should Invest in Stocks


If you are young and have a long-term investment goal, then not investing in stocks could become dangerous.

When you're young, saving for something far away - such as retirement - might not seem important. However, it is in fact that you should start saving as soon as possible. The more time you invest your money, the more time it has to grow. And one of the best ways to give your money a chance for long-term growth is by investing in stocks and stock mutual funds.

"In general, people should be more aggressive in their investment portfolio when they are younger, that is, lean more towards stocks," says John Sweeney, executive vice president of retirement and investment strategies.

However, some young people seem to be avoiding actions. When we ask young people (millennials, born in 1981 and after) what their investments are like, 39% of them say that 50% or less of their portfolio is allocated to stocks. Also, 16% say they only invest in cash. This situation is not the most favorable because investing little in stocks can limit the amount of money you will have for your retirement.

However, other Fidelity data suggests that this is not the case for all young people. Many younger investors, who have pension plans with Fidelity, have a good investment in stocks based on their age. This is because many automatically invest in the default investment option offered by their pension plan, which is usually a target date fund. With a target date fund, you can choose the fund whose target date is closest to the age at which you expect to retire. The target date fund manager selects, controls and adjusts the mix so that your investment matches the target withdrawal date.

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If you are among those investors who are not very fond of investing in stocks, here are three reasons why you should invest in them if your goal is to have money for retirement.

1. Stocks and Stock Mutual Funds Offer the Most Growth Potential

The actions Americans have consistently enjoyed higher returns than long-term bonds, despite the ups and downs of the market.

For example, we can analyze the value of $ 100 throughout the history of the stock market (S&P began monitoring performance in 1926). During this time, stocks produced an annual return of nearly 10%, bonds 5.4%, and short-term investments 3.5%, before inflation.

Of course, it wasn't a consistent straight line throughout the period, but this shows that stocks have historically offered more long-term growth potential. This is why investing in stocks, or stock mutual funds, is so important when saving for retirement or other long-term goals.

2. Stocks are able to withstand the ups and downs of the market

It is understood. It makes sense to have more stocks, but if market dips still make you nervous, remember this: things may get tough at times, but the stock market behaves the same way it has in the past for long periods of time, then you will have no problems.

Thinking about it this way can also help: Losses aren't real unless you sell your investments. If you are tempted to sell your investments when they have lost value, remember that you are investing for the long term. So why sell when you've suffered some losses when you can simply wait for the market to rise again?

Also, if you save regularly and continue to invest when markets tumble (and the market demonstrates the kind of long-term growth it has historically had), you are pursuing a very smart strategy. When the market recovers, you may be in an even better position than before to enjoy growth.

In fact, as the following table shows, what seemed to be some of the worst times in the stock market eventually turned out to be one of the best. The best five-year performance in the US stock market began in May 1932, in the midst of the Great Depression. The next best five-year period began in July 1982, when the US economy was in one of its worst recessions.

3. You don't have to invest all your money in stocks

We believe that an appropriate investment mix should be based on your time horizon, financial condition, and risk tolerance.

But, as a general rule, long-term investors should diversify their portfolio and include stocks in it. Take a look at the four possible instrument combinations and their statistical performance.

As can be seen, the conservative portfolio often underperforms portfolios that include stocks.

Read also: Learn How to Buy Stocks and Improve Your Investment Skills

Conclusion

Regardless of age and when you plan to retire, everyone wants to enjoy retirement and pursue their hobbies without having to worry about money. This requires creating a diversified investment portfolio and allocating more space for stocks.

Beware of excessive conservatism. You have to get used to the ups and downs of the market and learn to deal with them. If you're investing long-term and saving regularly, the economic downturn may work in your favor: You can buy stocks and mutual funds cheaply. This is the advantage of long-term investment.

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