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Buy On The Upside
Chapter 3: Goldilocks
Goldilocks got the better of the bears and was good at finding things
that were “just right.” In the same way, you should continually
balance your investments and their performance against your goals. Only
you can know completely what those are. Thus, as we will continue to repeat,
information helps you make decisions, it doesn’t make decisions
for you. Your goals are unique to your situation, and everything you do,
including investing in stocks, should start with them. For simplicity’s
sake, we describe four investment styles. All require commitment and work,
and all can be successful. They are really points on a continuum ranging
from extremely conservative to quite aggressive. Every investor is different.
But by comparing these brief vignettes to your situation and goals, you
can begin developing your own investment style.
Building Your Portfolio: The Young Long-term Investor
Many people begin serious investing in the stock market when they reach
their forties and fifties. With retirement coming in a few years, they
attempt to play catch-up and hope for large returns to fund their retirement
nest egg. To this end, more than half the families in the United States
are invested in the stock market. Why do they choose to own stocks? Because
for the last one hundred years, the returns from the stock market have
outpaced other popular kinds of investments like bonds and certificates
of deposits.
But the stock market doesn’t go up every year. In fact, there have
been periods when the stock market went down for several years or was
flat for many years. If you are middle-aged and happen to invest during
an off period, you may not accumulate enough money in your stock portfolio
to fund your retirement. However, if you invest at a very young age and
hold your investments for a long time, say forty or fifty years, you can
counteract the ups and downs of the market and you will have a very good
chance of making lots of money. The secret is to invest for a long time.
Thus, the best plan is to start investing at the earliest possible age.
With a rising long-term stock market and many years of investing, you
are almost certain to achieve large long-term returns. For example, $1,000
invested each year in the United States stock market from 1954 to 2003,
grew to $537,493 as of June 25, 2004. So a $50,000 investment grew tenfold.
This simple example shows that you don’t have to be wealthy to make
money in the market. You simply need a modest amount of money, discipline
to invest regularly, and lots of time. Obviously no one knows what the
future will bring for the stock market, but if you assume the long-term
future will be somewhat like the last fifty years, you should make lots
of money investing in stocks.
Just imagine how much money you could accumulate if you start a systematic
savings and investment program when you are eighteen and continued the
program throughout your adult life.
Teens and young adults have money at their disposal. Many receive a regular
allowance from their parents. Many have part-time or full-time jobs. Most
kids receive money from their parents and relatives on birthdays, special
religious celebrations, and holidays. Some are given money for academic
and other achievements. Often, high school and college seniors receive
money as a graduation present. And cash gifts are common as wedding presents.
| More
in this chapter:
Building Your Portfolio: The Conservative Investor
Building Your Portfolio: The Aggressive Investor
Building Your Portfolio: A Retirement Focus
Investment Schedules: How Much You Must Invest
Future Value of a Monthly Investment
Setting Up a Savings Plan |
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TOC Chapter
1 Chapter 2 Chapter
4 Chapter 5 Chapter
6 Chapter 7
Posted May 16, 2008.
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