Last time in “Ten reasons why I love investing in the stock market-Part 1” I discussed the first three reasons on why I love investing in the stock market. We will continue discussing the next three reasons .
4.) Investing in the stock market if done correctly is considered by experts the as the best investment.
Studies have shown despite the fact that the stock market may have its up and down moments, in the long run the stock market is still the best investment vehicle.
In the book of Prof. Jeremy Seigel entitled “Stock for the Long run,” he cited numerous case studies regarding this matter. The graph below indicates how stocks have beaten bonds and other vehicle of investments.
Based on the above mentioned graph from 1802 to 1997 (A span of 195 years, in the edition of Prof. Jeremy Seigel’s book the computations are only up to 1997) despite the stock market’s volatility and fluctuations, most of the time stocks take the lead over all other vehicle of investment. The greatest market stock crashes have become a mere blip in the chart. Hypothetically, $1 dollar invested (U.S) and reinvested in stocks in 1802 will be equivalent to $7,500,000.00 by the end of 1997 !
To give you an example with a local application in the Philippine stock market I read in an article somewhere that the year 1986 was said to be e recorded highest return rate at 224 %. The lowest rate of return was in 1997 wherein we had a negative 41 %. Nevertheless if you held on to your money for the long term (A holding period of about 20 years), the average return is still somewhere 24 % to 28 % per year.
But what about stocks as compared to investing in real estate? Well as I mentioned before in my post entitled “Investment vehicles that yields 15 % return – Part 1” there is money to be made in real estate but with certain disadvantages as compared to stocks. However to compare real estate with stock market investments let me quote from famed fund money manager Peter Lynch in his book “One up on Wallstreet.”
In chapter 3 of the book, Peter Lynch wrote that for 362 years the Indians of Mahattan has been subject to cruel jokes because they sold the entire Manhattan Island (Now part of New York City) for trinkets and beads (worth $24) to immigrants. However it turns out that they have made a better deal than the buyers who got the island.
If the Indians invested the $24 at 8 % per annum, compounded over the next three centuries the amount today would be about $ 30 Trillion U.S dollars! Even if you reduce the interest rate of return to 6 % per annum that would still be worth about $56.2 Billion U.S dollars. This is still a bigger sum compared to what the entire Manhattan Island is worth today which he estimates based on tax records during time of his writing to be only about $28.1 dollars.(One up on Wall Street 1989 edition)
Although Peter Lynch did not refer directly to stocks, the example may still be cited as a classic illustration of how stock investments will beat real estate if we assume the given rate of return to be that of stocks.
5.) Investing in the Stock Market forces you to learn.
When you invest in the stock market you are forced to read the business news and place significant meaning on major news headlines. News to you does not only become something to be discussed over coffee but something that is of great interest to you since you will know whether it affects your investments or not. You will be compelled to understand terms used in finance and in business that you did not even dream of understanding. You will become smarter than you were and you will be compelled to keep on learning and reading in order to expand your knowledge. If you slept through your economics or business class before, your eyes will be wide open when you try to figure out what inflation means and what is its impact on your investments is. Indeed, you will become very inspired to learn !
6.) Investing in the stock market gives meaning to the term “knowlege is power” & makes you realize how important the internet is
Today we live in what we call as the age of knowledge or the “information technology age.” In the information technology age, knowledge is power. For a lot of people that term is considered just a mere adage. But with online trading you will truly know what it really means. Since I was in college I really wanted to know what it is like to invest in the stock market. I was just amazed with the frenzy in the stock exchange as portrayed in the movies. I really wondered what that was all about. Somehow I consider myself as unfortunate not having been able to invest earlier in life. I did not get to invest at an early age mainly because of three reasons, lack of information, lack of capability and most of all lack of money. However with the advent of the internet age, information is readily available at the click of the mouse. Online trading is now possible by just merely letting your fingers do the walking. Now, I spend a lot of time online monitoring news, investing in the stock market and doing online banking among other things. I look forward to investing globally soon in other stock markets around the world. All of these while I am just sitting comfortably in my house!
Watch out for more at the next installment on “Ten reasons why I love investing in the stock market – Part 3” !
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