Investing comes with a lot of noise. Changing trends, politics, forecasts, the list goes on. Countless factors influence the stock market. Moving it up and down, sometimes aggressively in a matter of moments.
A sudden decline is a scary prospect, leaving new investors hesitant to dive in. Nobody wants to invest $1,000 only to have it be worth $900 by day's end.
Unfortunately, the ups and downs are part of the game. The good news is that the ups are a lot more persistent than the downs.
Taking a look at S&P 500 returns from 1926-2015, you can see that as more time passes, the greater the odds are for a positive return.
If you're investing for a day, you're pretty much gambling. It's a coin flip whether you'll come out on top. The odds shift greater and greater towards your favour the longer your time horizon. Of course nothing is guaranteed and past performance is no indication of future performance, but the data is convincing and it makes sense when you think about it.
When you own a stock, you're business owner. When you own a diversified portfolio, you own a lot of businesses. If you believe businesses as a whole will continue to innovate and grow, it's reasonable to believe that stocks over time will provide a positive return.
Diversification is key here. Most stocks on their own are terrible investments, many providing negative returns no matter how long you hold them for.
Stocks collectively however perform well over the long term. The S&P 500 averages about a 10% return annually. It's never a consistent return mind you (it can get pretty volatile), but the point is, over time stocks rise. Patience, my friend.
Market noise can create a bumpy ride for investors, but if you're a long term investor with a well-diversified portfolio, you can ignore the daily noise and enjoy the expected positive returns.
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