Why Investing In The Stock Market Makes Sense
Many investors have shied away from investing in the stock market in recent years. This is primarily due to the poor performance of the stock market since the year 2000 and the severe stock market sell-off that occurred during the 2008// 2009 financial crisis. While it is a good idea to maintain a healthy amount of skepticism about the stock market and not get caught up in stock market mania, keeping all of one’s investment money out of the stock market entirely is not a good long-term investment strategy.
The fact of the matter is that despite the stock market’s poor performance since the year 2000, over the long run (i.e., decades), money invested in the stock market provides better returns than just about any other long-term investment vehicle. If one is investing for retirement that is thirty or forty years in the future, the stock market on average can be expected to provide 7% investment returns by just investing in index stock market funds.
How To Increase Your Long Term Stock Market Investment Returns
There is a simple strategy to increase long-term stock market investment returns. While over long periods of time the stock market generally rises, the chances of successful long term investing can be increased by investing in dividend paying stocks. This is because no matter what the overall stock market does over short periods of time, dividend paying stocks pay investors returns on their investments. The money earned from dividends can be held in an interest earning account, invested in other investments, or reinvested in the stocks that are paying the dividends. Reinvesting dividends into dividend paying stocks is an excellent way to increase long-term stock market investment returns, because the money is invested on a dollar cost averaging basis and the dividend payouts increase over time as more dividend paying stock is held. Even when the stock market is in a slump, additional shares are purchased from the dividend income, which can be expected to eventually rise in value, as the stocks and stock market increase in value over long periods of time.
Since long-term stock market investors need not be concerned with the short-term gyrations that the stock market goes through, they can focus on investing in the stock market for the long run. Over time, money earned from dividend paying stocks and reinvested in the stock market can provide significant stock market returns that are even greater the average annual 7% appreciation that stocks have historically returned. The key to long-term stock market investing is to ignore quarterly stock market news and developments and to keep long-term stock market investment goals in mind. If you do not need the money you have invested in the stock market for many years in the future, then why worry about its performance in the short run? Just find good stocks that have a track record of paying dividends, and let the stock market work its magic over the decades. Revisiting one’s long-term investment portfolio occasionally and diversifying stock investments over a number of stocks is a good idea, but stick to the long-term plan to make money in the stock market over the long run.
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