The stock market is a wealth-building machine
The New York Stock Exchange first opened its doors 200 years ago. It gave individuals a way to directly take ownership in businesses.
Over the next two centuries, the stock market became the most reliable and accessible way for individuals to compound wealth over time. Even including the recessions, the depressions, and the ups-and-downs of the economy, the average consolidated investment return provided by America’s 500 largest companies has been approximately 10% per year since the S&P 500 was created in 1928.
But the prices of the things we buy generally increase at only around 2-3% per year. So if you are growing your savings at 10% while the things you want to buy are only getting 3% more expensive, you are compounding wealth over time.
This is one of the fundamental reasons to invest in stocks. Over long-periods of time, stocks have consistently outperformed any other investment option ─ including bonds, gold, real estate, Bitcoin, stamps, and cash stuffed under the mattress.
Finding the signal in the noise
But there’s an important catch: that 10% per year is a “long term average”. It’s calculated by looking at where the S&P 500 is today, and comparing it to where it was a long time ago.
In our day-to-day lives, there’s a ton of emotionally-charged movement – both up and down! – that takes place in that middle zone. There are financial news programs talking about how the market is going to “soar” or “crash” every single day. There are political, economic, and social headlines that dominate the media. Those headlines influence the emotions of investors, which directly affects the market’s overall returns.
It’s also very rare that stocks go up by exactly 10% per year. In 2008, the market fell by 37%. In 2019, it increased by 31%. There’s a ton of variation in there. And that can create very disappointing results, if you need to pull your investment money out only a single year later.
This is why we preach the importance of long-term investing. If you’re able to invest into good companies and then tune out the noise for a few years, you will typically benefit from the stock market’s compounding effects without also incurring its emotional abuse.
And through diligent research and analysis, it’s possible to find the cream of the crop within those broader-market averages. Certain companies are the best-poised to capitalize within their unique markets, which can lead to outsized investment returns. Just think how much Apple, Microsoft, and Amazon have individually contributed to the market’s “overall return” during the past decade!
Our team’s approach is to be keep a close eye on what’s taking place within the business world. By focusing on innovation, we look to maximize investment returns by finding the stock market’s very finest opportunities.
Investing should be personal
We also stress the importance of investing being a personal thing. You know your financial goals and risk tolerance better than anyone else. So we encourage investing in companies that would also match your preferences.
For example, if you’re retired and looking for steady monthly income, you might be most interested in a well-established company who pays its profits out as dividends. For you, that could mean quarterly checks being paid to you in a very reliable manner.
If you’re a bit more risk-tolerant, you might consider smaller companies with more upside potential as markets change. Up-and-comers can often capitalize on new and developing trends. Amazon took full advantage of capitalizing on people’s newfound online purchasing habits. Netflix built a premium digital library to capitalize on high-speed media streaming.
In other words, each stock is tied to a specific company, and each company is part of a larger industry. We’re constantly combing through those industries to find the most likely winners.
If you’re interested in learning more about investing, we recently published a step-by-step guide to buying stocks and a glossary that defines common investing terms.
Our site will be offering our seven best ideas in the stock market for $17 per month. We believe our recommendations could benefit different people in a variety of different ways:
- If you are already actively buying stocks, our recommendations are immediately-actionable investment ideas.
- If you have a financial advisor managing your money, our picks are conversation-starters that could be considered for your existing, diversified portfolio.
- If you are interested in innovation, our reports and interviews highlight several of the market’s most recent technologies and developments.
- If you are interested in learning how to analyze companies, our reports lay out exactly how we evaluate businesses and what specific things to look for.
- If you are completely new to investing and this all seems overwhelming, read everything we publish for six months and then amaze yourself at how much you’ve learned.
We look forward to sharing this incredible journey with you. Thank you for your interest in 7investing!