According to financial experts, investing over the long haul is one of the safest ways for you to not only make money but to help save your money. How is this possible? Here’s the quick down and dirty of it all.
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First, you get into a money market type of account, where your investments are spread out among a lot of companies. What this does is protect your investment if one company starts to tank, and gives the person handling your account time to switch you to someone else more stable.
Second, say you started out with $500 in your account, and for the next 35 months you put $100 a month into your account. Then imagine that ever other month the market increases 1%, and on the opposite months the market fell 1%. At the end of 3 years you’d have made $18 and change; that’s not very good, but at least you made money.
Then say that you started out with the same money and added the same amount monthly. Investors say the market makes money at a 10 year rate of around 2.5%; I don’t know if they all agree to this but an investment guru gave me this one so I’m using it for now. Then say I do the exact same thing as I did above, only instead of the 1% increase every other month it’s 2.5%, and yet I still have that 1% decrease. At the end of 3 years you’d have made $565 and change; that’s a little better.
But the market doesn’t really work like that, up and down from month to month. It works in stages. Look at what’s happened to the market in the last year; very dramatic upward increase, right? Then for about a week the market was tanking before regaining a bit of balance. It will go up a bit more, but at some point something’s going to happen somewhere in the world and the markets (including the market in other countries) are going to fall. How far? Depends on how bad the crisis turns out to be.
In general terms though, for every six months up you’ll have six months down, yet you’ll still come out to that 2.5% gain after 10 years. We’ll do it a little worse than that. We’ll increase 2.5% for six months, then decrease 1% for six, just to be below that figure. You’ll still have made $447 and change.
These are low figures I’m using, because we’re assuming you’re still pumping money into your investment account monthly. Anyway, your money market is probably going to return a higher amount than that 2.5% over time even with the down times because your investment manager is going to drop the bad stocks and move to better ones.
Remember 2008 and 2009? What happened then was more of a fluke than the norm, as it usually doesn’t drop almost 50% of its worth in a year. Just like what happened in 2017; those types of jumps are aberrations. With more stability in the stock market, your money will normally increase faster than it will lose money.
It takes a lot of courage to invest long term and not touch any of the money until it’s time, or unless you absolutely have to. You also have to be smart when you do decide to invest. You need to pay attention to what’s going on in the market, even if it’s only once a month, and you need to be ready to call your investment manager to see if they’re taking care of you. A horrible lesson to learn is that your investment manager has left the company, or the rules have changed with the organization they were with and suddenly no one’s managing your investments.
If you have the courage and confidence to leave your money alone for the long term, and can continue popping something into it on a regular basis, you could turn out all right, as long as you pay attention to what’s going on.
