Stocks, in essence, should provide a greater return than bonds. However, they come with greater volatility along the way.
For the S&P 500, the generic long-term return is around 8 to 10 percent a year. Comparatively, if you are able to pick your own stocks which justifies the effort, you ought to be getting a 12-15 percent return over time. If not, your skills or techniques may be a bit flawed. If this occurs, you should step aside and just buy some good ETFs. The stock market is not for everyone and that is okay. The ugly truth is that it may be NOT worth your time to play in the stock market.
If you are investing emotionally, chasing trends and news, loading up on penny stocks, or failing to diversify, you should also step aside to avoid bigger potential missteps.
All these pitfalls notwithstanding, if you can develop some basic skills/ techniques and manage to make 15 percent over time, stocks are, in essence, one of the better asset classes. Investing in good companies means you own partial ownership rights in the company that entitles you to share the earnings that may occur and accrue. If you started with $100,000 in your RRSP or TFSA with 15% compound returns, it will bring you $813,706.16 in 15 years.
It is not worth your time to do any investment if it cannot bring you 12 to 15 percent per year. Investing properly is not a gamble. We should not lose money in the stock market on a long term basis. In fact, a near guaranteed return of 15% or higher is a realistic expectation.
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The assertions made in the article about stocks, bonds, returns, and investment strategies touch upon several crucial concepts in finance and investment. Here's an in-depth breakdown:
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Stocks vs. Bonds: Stocks are equities representing ownership in a company, while bonds are debt securities issued by entities seeking capital. Stocks generally aim for higher returns over time compared to bonds due to the higher risk involved.
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Returns: The S&P 500 historically offers an average return of 8 to 10 percent annually, highlighting the stock market's long-term potential. However, individual stock selection, if done well, could yield higher returns of 12 to 15 percent over time, suggesting the possibility of outperforming the market average.
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Effort vs. Reward: Picking individual stocks requires substantial effort, research, and skill. If one can consistently achieve higher returns, it justifies the effort; otherwise, it might indicate flaws in the approach, prompting a shift to ETFs (Exchange-Traded Funds) for more diversified exposure to the market.
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Investment Pitfalls: Emotional investing, trend-chasing, overexposure to risky assets like penny stocks, and lack of diversification can lead to significant mistakes in the stock market. Avoiding these pitfalls is crucial for successful investing.
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Benefits of Stock Ownership: Investing in stocks means owning a portion of a company, entitling shareholders to a share in the company's profits through dividends and potential capital appreciation.
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Compound Returns: The power of compounding is highlighted, demonstrating how a 15% compound return over 15 years can significantly grow an initial investment.
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Investment Expectations: The article suggests that an investment should aim for a minimum return of 12 to 15 percent per year to make it worth the effort, emphasizing the idea that proper investment is not akin to gambling.
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Risk and Guarantees: The article implies that with proper investment strategies, the risk of long-term losses in the stock market should be mitigated, advocating for a near-guaranteed return of 15% or higher as a realistic expectation.
The article combines financial principles, investment strategies, risk management, and the psychology of investing. It emphasizes the importance of skill, strategy, and a long-term view when navigating the stock market. While the 12 to 15 percent return expectation might be ambitious for many investors, it underscores the significance of setting realistic yet growth-oriented goals in investment planning.
