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An Example of How Long Term Investing Works

Sometimes You Need An Example of How Long Term Investing Works


It is useful to look at an example of how long term investing works to gain an understanding regarding why the “buy and hold” investing strategy is so highly regarded in the investment community and may be the correct investing strategy for many individual investors to pursue. While some may view the “buy and hold” investing strategy as so common and basic that it is little more than a useless cliché that is repeated by investment advisors over and over again, a look at the stock market data over long periods of time demonstrates why this strategy is a prudent one to utilize. In fact, most investors would be surprised to learn just how much the stock market has increased in value if they look back four decades, which is a reasonable amount of time for a person to be invested in the stock market for long term needs, such as retirement.

An Example of How Long Term Investing Works | Looking at Stock Market Indexes

Consider this example of how long term investing works, which looks back at stock market indexes forty years into the past. In April 1975 the Dow Jones Industrial Average (DJIA) was approximately 825, while today in April 2015 it is over 18,000, which is a more than 2,000% gain. The Standard and Poors 500 (S&P 500) index had even larger gains over this forty year time period of over 2,300%. The winner over the past four decades has been the technology heavy NASDAQ index, which has booked over 6,200% gains since April 1975.

Long Term Investing Works

The examples above are just gross index gains over four decades, and do not take into consideration dividends that were paid or reinvestments of dividends into stocks over this period of time. When dividends and reinvestments are factored in, these gains could be substantially higher for individual investors.

Forty years is a reasonable amount of time to take under consideration when accessing long term stock market gains. This is because most people start saving for retirement when they are in the twenties or early thirties and invest money over four decades for retirement, which occurs anywhere from the age 65 to 75, depending upon a person’s circumstances.

What To Keep In Mind Regarding Long Term Investing

Here are some important things to keep in mind when investing for the long term, such as investing for retirement several decades in the future.

  • Dollar cost averaging works. This is when you buy stock or stock funds, such as mutual funds or exchange traded funds (ETFs), on a regular basis, regardless of where the stock market is trading. Dollar cost averaging will allow you to establish investments in stocks and stock funds that will grow over time, without regard to timing investment entry points. Just put your money to work in the stock market.
  • It is important to remain invested. There is an allure to trying to time the stock market; however, it is important to not get caught up with market timing and to just remain invested over the long haul. The reality is that even professional investors have difficulty timing the stock market properly. Ordinary individual investors are better off riding out any stock market dips and using the principal of dollar cost averaging to buy on dips, with a focus on long term gains. Even if an individual investor successfully gets out at a near term stock market top, all too often they fail to buy back in at a near term bottom, and find themselves out of the stock market missing the next leg up.
  • Reinvest dividends to maximize returns. Investments in a broad array of stocks can be expected to return approximately nine percent per year over long periods of time, such as four decades. This includes both up years and down years. In the long run, the up years will outnumber the down years, providing the long term returns. The best way to maximize stock market investment returns over long periods of time is to reinvest any dividends earned back into the stock market, as reinvested dividends invested in stocks will enhance returns over time.

An Example of How Long Term Investing Works | Focus On The Long Term

Long Term Investors

The most fundamental thing an individual investor can learn about investing is to tune out the constant drone of stock market pundits and simply focus on the long term. The thousands of percent returns that have occurred in the stock market from April 1975 to April 2015 included many periods of stock market panics and gloomy outlooks, including the October 1987 crash, the severe 2000 to 2002 bear market sell-off, and the financial crisis and stock market swoon of 2008 and 2009. Those who sold out during these notorious stock market sell-offs lost out on the long term investment gains.

If you do not need your money in the short term, because it is intended for retirement decades in the future, then just ignore the short term stock market noise and keep your focus on the long term. If you have extra money sitting in cash on the sidelines, use any dips in stock market averages to dollar cost average and increase your long term investments. The example above regarding how long term investing works should provide an individual investor needed confidence to be a long term investor.

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What are Taxes?

Comedian Lewis Black did a skit on the importance of taxes, on a stand up special a few years ago. And although it’s amusing watching him freak out in his political satirist atmosphere; he makes a valid point. Of all the math we’re taught over the years, some of it so specialized it has no actual application in our everyday life, then “Why hasn’t anyone taught taxes in a math class?”. Taxes are an integrated part of adulthood, and whenever you look at potential income to be earned, that little phrase comes into mind: Gross income vs. Net income. This comes about while planning out your finances, monthly budgets, and yearly projected income, savings, and investment options. All of these variables are important to look at, understand, and plan for when moving forward with safe financial planning.

What Are Taxes?

Seemingly an easy question. Taxes are a collection of finances taken from your income, as well as everyone with a paycheck that goes into the funding of common interests; whether that be at the municipal, state, or federal level of government. Essentially, you make a dollar amount and a percentage of that dollar amount goes back into the community pot to fund things and services desired by the community for education, self improvement, and safety and security. Your tax percentage is based on the amount of money you make hourly or monthly, or yearly, and depending upon that tax bracket is the amount of money per year you are required to pay. Now, most of us already know this, and the bulk of us would agree that we simply do not pay taxes, because whenever pay day is, usually the taxes have already been deducted from your pay stub.

Gross vs. Net income

Gross income is the amount of money you have made before taxes and net income is the amount of money you made in a year after taxes are subtracted. Easy enough right? When it comes to financial planning we often base our living expenses on that we make, what our yearly worth is worth: our total gross income. But the bulk of us have to pay taxes. If the government is successful at anything, it is collecting taxes on any amount of income that you report. Say you are looking to buy a car worth $25k, and last year you made $30k net income, but made $38k in gross income. On the application either leasing or buying, you’re going to write down that last year you made $38,000.00 because that will give you the best buying power next to your credit score.

Income Tax

taxesHave you ever tried to do your income taxes on your own? It’s like reading another language that has only commands and makes no sense. This is really where Lewis Black’s comic frustration takes on a relatable sense of humor. But the idea stated above remains. If we are socially obligated to pay taxes and according to Lewis Black, “…taxes are math, why hasn’t anyone, in the history of math classes, taught taxes in a math class?”  Because while we try to plan out our financial future while budgeting our monthly spending, we find that either we are paying the government too much. Or perhaps, regrettably they want more from us and claim we haven’t paid enough. While there is no federal law stating that you have to file an income tax return; should you get audited and owe money, the true relentless force of the government will come into full effect until you’ve paid off your debt. Those of us who do not have all the disposable income to throw away find ourselves every tax season filling out income tax forms to try and get any amount of money we can back from the government, so that we can get a mini tax free bonus that’ll make us feel better about our finances, or sometimes, lack thereof.

Taxes are an integrated part of our everyday life. We have to pay taxes and therefore on some level, we should understand why we are taxed, and where they are going. Perhaps the idea of financial and retirement planning that we often seek advice and guidance from financial planners, advice columns, and those around us, should in fact be taught in school to help prepare us for the actual challenges in our adult life, you know instead of the required trigonometry and whether an  obtuse triangle has a mass of whatever. Safe financial planning comes from understanding the amount of money you are making, the amount you will owe to the government, and the understanding of the variables on income that you can trust as secure numbers where your retirement money and investment options can lead you in the future. It is only through this knowledge that the role of taxes can have a positive outlook on everything you do in your present financial decisions.

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The Basics of Investing


What is Investing?

Investing tends to be one of those nebulous monetary terms. Most people have some idea of the definition of the word, but few actually understand how the concept works. Most people do realize, however, that investing is a great way to make money. Figuring out how to take that knowledge and make it a reality, though, is often a different story. If you do understand how investing works, you might be able to take a few chances and figure out whether or not the stock market is worth the risk.

Investing Intelligently

The best way to think about investing is to consider it a method of putting your money to work. Rather than letting it sit in a savings account where it might earn a bit of interest each year, this method of moneymaking will allow you to buy a small portion of a specific company or resource. If the value of that company or resource rises, you will make a profit. If it falls, though, you will lose money. Investing, like any other method of making money, carries risks but it can also carry great rewards.

Investing always makes sense of those who are able to do so reasonably. If you are down to your last dime, you might be better suited looking for a different way to make money. If you have any kind of disposable income and want to make sure that your money does not languish, though, investments are the best way to go. It is the only real way to make money without putting in a great deal of hard work, and one of the few ways to profit through your own cleverness and intelligence. Investing may not be right for everyone, but it is the best choice for those who want to make money.

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Using The Right Stock Market Investment Strategy


Diversity Is the Key to a Good Stock Market Investment Strategy

A good stock market investment strategy spreads out investments more-or-less evenly. This does not mean that an occasional concentration in a booming sector of the economy is out of the question. However, everyone knows that specific stocks both rise and fall. By making diversity in your portfolio your standard, you ensure that your total investments will do what the whole market always does in the long-term: grow. Over time, the total value of the market has grown. By spreading your investments around to different sectors and industries, you virtually guarantee that your portfolio will follow the rise of the market and bring you a substantial return, this is a good stock market investment strategy.

stock market investment strategyStock Market Investment Strategy: A Diverse Portfolio

The first major division of your money in a stock market investment strategy is the split between the money you put in stocks and the money you put in bonds. The latter are considered safer, but they tend to appreciate much more slowly. Most investors will recommend a small fraction of your money to be put in bonds if you are young and have time to weather the rise and fall of stock prices throughout your life. As you get older, the amount of money you invest in bonds should increase in order to safeguard money for retirement.

Place your money in stocks using a similar stock market investment strategy. Divide your investments between the small cap, mid cap, large cap and mega cap possibilities. Small cap companies are generally newer and riskier investments. They also have the ability to grow exponentially and net you a fantastic return. Large caps and mega caps are large, established companies who are unlikely to see decline but also do not grow so quickly. Your stock market investment strategy, over time, should be to move your money into the larger and safer stocks.

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Why You Should Consider Uranium Investing

 There Is Good Reason to Start Uranium Investing Today

Given the latest troubles about nuclear power in Japan, one might think that uranium investing was out of the question. This viewpoint overlooks some basic understanding of the market and the present growth of advancing economies around the world. Uranium investing is a better idea now than ever before.

Economic Growth and Uranium Investing

Uranium InvestingWhile the United States and some European countries have considered drawing down their use or dependence on nuclear power, other countries are seeking to expand their nuclear power industries. One point naysayers ignore is that the countries that have spoken of turning away from nuclear power are not expanding their populations. European populations are stagnant or declining.

The population of India, however, is growing at a rapid rate. Their economy is simultaneously booming. In order to meet the rising needs of so many people and a thriving industry, the Indian government seeks to increase its use of nuclear power. They have 58 planned reactors on the drawing board already. With oil growing scarce and coal burdened with an association with pollution, growing economies like India’s are more and more attracted to nuclear power

Uranium Investing In the Long Term

There has actually been some recent rise in the value of uranium, even in light of the events in Japan. While short-term outlooks foretell some possible decline because of this, most economy watchers predict a significant increase in the long-term because of growing economies like India’s.

Increased Exploration As Motive for Uranium Investing

If anything indicates the wisdom in uranium investing, it is the ongoing exploration for this rare element. Uranium hotspots such as Canada, Australia and central Asia have all seen a recent rise in the amount of uranium exploration. The time to get in the market for uranium is now.

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Where to Invest In Penny Stocks

Where to Invest In Penny Stocks Depends Upon Your Investment Style

Where to Invest In Penny Stocks

An investor or trader who is looking to invest or trade in penny stocks has many questions, such as where to invest in penny stocks?  The answer to this important question regarding where to invest in penny stocks depends upon one’s investment or trading style.

If one is a long term investor or a casual investor or trader, then any number of well known brand name stock brokerages such as Fidelity Investments, TD Ameritrade, or E-Trade are suitable for penny stocks investing and trading.  Unlimited shares of penny stocks can be bought and sold online for one flat fee of $10 or less through many brokerages.  These same brokerages also offer a great deal of information about penny stock companies, such as company contact information, company news releases, share structure, filing status, and if they are a Security and Exchange Commission (SEC) reporting company, company SEC filings.

For more active traders, the question regarding where to invest in penny stocks is a bit more complicated.  For additional fees, the brand name stock brokerages offer higher levels of trading services that can greatly aid active traders with getting into and out of penny stocks at specific price points, including Level II Quotes that provide all of the best bid and best ask quotes and the associated order sizes for a stock.  Some even offer proprietary trading products that let one test out penny stock trading techniques.  This level of service is suitable for most penny stocks investors and traders.

For penny stock traders who want even more control over their trades and want to be able to get into and out of penny stock positions at a rapid pace and at specific price points without delay, direct access trading systems (DATs) might be the best way to trade penny stocks.  DATs trades cost more, but the additional order routing control and order execution speed make DATs worthwhile for highly active traders.  DATs make it possible for a trader to route a stock penny stock order directly to a market maker, a specialist, or electronic communication networks (ECNs), which provides much faster order execution than online brokers.

Most United States based brokers that facilitate trading in penny stocks do not allow margin buying and shorting of penny stocks.  Traders that wish to buy penny stocks on margin or short (sell short) penny stocks, should consider opening up an overseas penny stock trading account for additional trading flexibility.

Where to Invest In Penny Stocks – Some Investors Open a Separate Account

Some investors and traders find the easiest way to separate their regular investments and trading in NYSE and NASDAQ listed stocks and investments and trading in penny stocks is to open a separate account.  This provides a firewall between pools of money that have been set aside by an investor or trader for a specific purpose, such as long term investing in listed stocks and investing and trading in penny stocks.  It also helps investors and traders to keep their profit and loss results straight from different investing strategies.  Ultimately, where to invest in penny stocks depends upon one’s level of investing and trading activity and whether they want to separate their penny stock investing and trading from their other investment accounts.

See Also: Why Invest In Penny Stocks?

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