Investing in stocks isn’t always what it’s cracked up to be
Stocks have long been hailed as a safe bet for investments in the long wrong. We have been told not to worry when the market takes on a bad day, and not to overreact and sell during rough patches, as the market tends to go up. While these facts may be true, is it wise to call an investment that continiously fluctuates without any certainty, and that we have to attach warning disclaimers to, as a “good investment”?
There was the Great Depression in which stocks drastically fell and Wall Street was on the edge of complete collapse. Some blame over-speculation while others incorrectly blame the lack of regulations, however whatever the case may be, stocks fell and they fell hard, despite some efforts to keep them inflated. It is just logic that when things are cheap, people tend to demand more of it, and when they are high, there is a less of a demand. Once a market hits a point, price per shares are just no longer “cheap” and desirable, slowing down returns and leading to the value of a stock to plummet.
Stocks can be an unreliable retirement nest egg
With many of us having portfolios that include 30-70% stocks, it is unwise to use such a fluctuating investment to rely on for our retirement. We cannot hope that by the time one turns 65 years old that the market just coincidentally is at an all-time high, when chances are it is somewhere in between, or like most of 2011, going back and forth between small gains and losses. Making life decisions around stocks is what leads to retirement portfolios being in shambles and family devastations.
There is even the misconception that growth stocks are the ones to purchase. Instead of making safe bets in long established companies such as P&G or Johnson and Johnson, many investors all seek to hit it big with the supposed next Google, Apple or Microsoft. While many companies have suppsoed large expected growth rates, the past decade shows a trend that gives the exact opposite. If the earnings rate was projected to be over 30%, the annualized return on average was a negative 9.7%, Earnings projected between 20-30% resulted in returns at a negative .2%.
A lot of returns is also based on these projections being met. A company could have an earnings rate of 40%, a large percentage and by most outsiders a great level, but if investors had the mindset that it should have grown by 50%, then all of a sudden stocks are sold off and the investment in an obviously successful company can easily turn into a loss iof your investment.
Investors need to realize exactly what a stock is and not treat it as a piece to back their retirement or make them richer. It is a partial ownership, or a stake, in a company. Whether the company succeeds or fails, you are at its mercy, and whether your life is affected is up to how you treat stocks, as ownership or as a way to retire.
Bio: The author is an expert in stocks and equity management