Ups and downs of the stock market
I have been asked about the inevitable ups and downs of the stock market. So as a lawyer, who you would reasonably think after 40 years of practice I would have some understanding of the stock market. However, that is NOT the case. There is much I don’t get.
But here are a few things I think I understand.
- Anyone who watches the daily or even weekly ups and downs of the market and “invests” on that basis will lose in the long run.
- To maximize your return for the later years (I am over 70 now but believed this even when I was 35) one should invest at least a substantial portion of their “savings” in the stock market.
- “SAFE SAVINGS” AND LOSING MONEY- To those who put their savings under their bed or in a nice, safe, FDIC protected bank account because they don’t want to “lose “money so they “don’t have to worry”, I say in the long run you will probably lose purchasing power- which to me is the same as losing money.
- I was an economics major in college but didn’t get most of it- too complicated for me. What I did get is that if I put $100 in a savings account 15 years ago, that money will purchase less today with interest than it did then. I call that losing money.
- The other part of saving I get is compounding. Essentially, that means you make money on the money earned on that $1 saved. It is amazing how compounding makes your investment grow, and the stock market is the best place for that to work.
- An example, my wife and I early on made 2 investments. On the advice of an “expert” we invested some savings in a tax-free fixed rate return, which didn’t compound.
- About 10 years later we had saved about half of that amount and put it into a specific stock. Both investments were tax free because the stock didn’t pay a dividend.
- We did nothing with either investment for 40 years. The older investment was worth twice what we invested over 40 years; and the stock was worth eighty times the original investment!!
- Do the math!!! If we had put the first investment in the stock, my wife could buy that boat her second husband may want!!
- The second investment serves as the basis for our retirement. (I am not retired yet, she says “just keep working!”)
NEXT INSTALLMENT, THE UPS AND DOWNS OF THE STOCK MARKET