Invest for the Long Term

December 3, 2014 at 10:55 pm Leave a comment

With major market indices keeping hitting new highs seemingly every day, what should investors do?  While no one knows what will happen tomorrow, next month, or next year, I do know that investing for the long term works.  In fact, I will say that over the long term, staying out of stock market is more risky than being fully invested.

While that statement may leave you scratching your head, consider that since 1900, the stock market returned about 10% annually on average, while the nearest competition, bonds, returned only 4%.  The difference is huge: $1000 invested at 10% will grow to $17,449 in 30 years, while that same $1000 will reach only $3,243 at 4%.

The domination of the stock market has been quite consistent over short intervals as well.  According to Stocks for the Long Run by Jeremy Siegel, over 5 year periods stocks outperformed other investment vehicles 70% of the time. Over 10 years, 80% of the time.  And over 30 year periods, stocks always outperformed other investment types.

This outperformance does come with a price of short-term volatility.  However, as history shows, over long term, stocks are in fact less risky, if you define risk as opportunity cost.  In my view, investing in “safe” securities and realizing subpar returns is far greater risk than the risk of short-term fluctuations in the stock market.

Entry filed under: Miscellaneous.

Proper Investing Mindset Market will fluctuate

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Blog Author

Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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