Investing in Stocks (Part 1)

Investment experts know that stocks are one of the best long-term investments you can make. According to the website, thebalance.com, 21 of the 34 years from 1986 to 2019 saw stock market gains of at least 10%, while only 6 of those 34 years saw stocks lose money. (https://www.thebalance.com/stock-market-returns-by-year-2388543) I can tell you that my own stocks rose 98% from 2013 through 2020—that’s an average of about 10% per year—and have risen about 20% so far during 2021.

Many people are invested in stocks through a mutual fund or an ETF (exchanged-traded fund), often through a pension, 401(k), or retirement account. These funds manage your investment for you in accordance with the terms of the fund. The fund managers take their fee out of the money that is invested, usually based on a percentage of the amount invested. A mutual fund or an ETF is a great option if you either lack sufficient funds to effectively diversify (more on that next week), or if you prefer to pay someone else to manage your investments.

I am invested in individual stocks rather than one of these funds because I don’t want to pay a fee for the privilege of investing in the stock market. That is especially true now that many brokers are offering commission-free stock trading, which means they don’t charge you a fee for buying and selling stocks. By the way, studies have shown that stocks picked through random chance generally do about as well as those picked by the experts.

Now I don’t claim to be a trained financial expert, but I have learned a great deal from reading what the financial experts tell us, in addition to my experience managing my investments for over twenty years. In my next two blog entries, I will share what I have learned, including two rules that are well known and widely accepted by experts and experienced investors.