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When to Start Investing in Stocks
Over the long haul money invested in the US stock market tends to provide better returns than other investment vehicles. When to start investing in stocks is early in your life. How good are stock investing returns? Thesimpledollar.com quotes Warren Buffett who says you can expect a 6-7% annual return from the stock market over the long term. Where does 7% come from?
Buffett describes the analysis that led him to that kind of conclusion:
“The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.”
There are single stocks like Microsoft in its growth phase that grow a hundred fold over a decade and there are years like the bull market from 1982 to 1999 when stocks gain closer to 15% a year. But predicting which stocks to buy and timing the market is not easy. If you want to aim for that 7% figure invest in a wide range of stocks or an exchange traded index fund that follows the S&P 500. Then the averages will apply to you. If you buy just a couple of stocks pick large cap stocks that have a long history of paying dividends and steady growth. If you want to beat the averages what do you do?
Big Picture Market Timing
There is a famous old saying credited to Baron Rothschild. The time to buy is when there’s blood in the streets. He made a fortune buying in the London stock market panic following the Battle of Waterloo in the 19 century. Market timing can be tricky but when big picture events drive all stocks down as in a stock market crash there are great stocks to buy everywhere. These are the US stock market crashes in the last 30 years.
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• Black Monday,
October 19, 1987
• Friday the 13th mini-
crash, October 13,
1989
• Early 1990s
recession, July 1990
• Dot com bubble,
March 10, 2000
• Stock market
downturn of 2002,
October 9, 2002
• United States Bear
Market of 2007-09,
October 11, 2007
• Financial Crisis of
2007-08, September
16, 2008
• 2010 Flash Crash,
May 6, 2010
• August 2011 stock
markets fall, August
1, 2011