Whether it’s buying a car, booking a vacation, choosing stock software or investing in the stock market, it’s usually a good idea to consider what your results will be before taking the plunge and working through the details.

Stocks have performed exceptionally well over long periods of time.

Of course the details, when it comes to investing, are a little more complicated than simply purchasing a new automobile or agreeing where to go on your next family vacation, but at a high level it’s the same.

The first thing you’ll need to know is what to expect if you invest in the stock market. Nothing is guaranteed, of course, but long periods of history can give you a good indication of what to expect if you plan to hold stocks for 5 years or more. If you’re looking for a shorter time period, then all bets are off.

So what can history tell us about the long-term performance of stocks?

Well, if you had chosen a globally diversified portfolio of stocks (from 19 major countries), then you’d have seen an average growth rate of 8.5% from 1900 to 2011. That’s a stellar track record, the enormity of it usually lost on most people. To put it into perspective, if you (or your great-grandfather) had invested $1,000 in such a portfolio back in 1900, and then never invested another penny, you’d have had almost $9.3 Million at the end of 2011. Granted inflation would have wiped out a good portion of that, but it’s still a lot of money.

And in those 19 major countries, stocks outperformed bonds in every single one. This tells us it’s quite probable stocks will continue to be one of the best investments going forward. However there are a few potential glitches to consider.

First, most of us don’t hold stocks for 112 years, second, most of us don’t hold good stocks and third, most of us don’t diversify properly.

The good news is it’s entirely possible to see these kinds of returns over a few decades rather than a century or more and, with the abundance of accurate company financial data available over the Internet, it’s now very easy to find good stocks and diversify properly without too much effort.

Take U.S. stocks from 1992 to 2012 for example.  The average annual return for the largest U.S. companies was 9.5% (7.1% in price appreciation and 2.4% in dividends). This beats any other relatively safe investment strategy. In fact, every 20 year period since 1900, except one in the early 1920s, was profitable even when taking inflation into account. Every. Single. One (except one).

In over half of the rolling 20-year periods, stocks gained about 7% a year. Some periods returned more than 10% a year. So it should be clear you don’t have to think in terms of 100 years to realize exceptional returns over your investing lifetime.

And that’s why you need to have at least some of your money in the stock market if you still have an investing horizon of 5 years or more. Stocks have enabled smart investors to take advantage of buying into well-managed, exceptional companies and ride their coattails to wealth and riches of which most people can only dream.

The flipside of this, however, is there is a sizable pool of speculators who’ve lost a great deal, or sometimes everything, in the stock market.

The difference between these two groups is simply knowledge. Knowing how to invest like, say, Warren Buffett, is the key to a solid performance. Listening to hot tips or chasing, “the next big thing,” without calculating the risks or knowing anything about your investments is an almost sure road to ruin.

Fortunately you can gain the needed knowledge faster and less expensively today than at any other time in history. So take advantage of the myriad resources available on the Web and leverage your computer and proven stock software to tip the scales of success in your direction.

Many other regular people have done it in the past and you can do it too.

Announcing a Breakthrough for
Individual Investors...

Discover the Investment World's Most Effective Money-Making Strategies

If you'd like to invest without fear, even in these anxious times, using the simple, proven investment techniques the World's best investors use every day, you need The Pragmatic Investor.

It guides you step-by-step through the process of constructing solid, highly profitable portfolios that minimize your risk in the markets.

Plus you'll learn how to Overcome the Psychological Barriers to Investing Success, Insulate Your Wealth from Market Volatility, Grow Richer Without Fear and make your portfolio a Fortress of Security.

You'll also discover which stocks to dump right now.

I just read the Pragmatic Investor and am really impressed. Since I started investing, the majority of hype [is for] trend, momentum and technical analysis.
This always intuitively seemed like smoke and mirrors to me, but what a breath of fresh air when you hear that investing in a company that makes money and has good fundamentals is the real way to go.

-- John Whitworth, Michigan

If you invest in the stock market, The Pragmatic Investor is your Essential Wealth Building Tool.

Click Here to Get it Now

An iPad Edition is available on iTunes.

A Nook eBook Edition is also available from Barnes & Noble.

Next Article:  
Previous Article: