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Is your investment portfolio on track to meet your financial goals?
The case for stock investing
In the world of investing, stocks are synonymous with growth and, as many investors recently witnessed, stocks are synonymous with risk. However, regardless of their reputation, seasoned investors know that stocks may be a necessary component for most long-term financial goals, such as retirement and college planning, or simply building wealth. So, for most investors, the question is not "whether to invest in stocks", but how to manage their above-average volatility.
Here we make the case for investing in stocks and offer a few time-tested strategies to help you manage the risks associated with stock investing.
Why should you consider investing in stocks?
1) Stocks have historically outpaced inflation
If you’ve picked up a Wall Street Journal lately, you may have read an article or two about the U.S. economy heading into a period of higher inflation, due to rising energy, oil, healthcare and real estate prices. Regardless of past or recent trends, sooner or later inflation – at any level – will have a negative impact on your investment returns. To combat inflation, you’ll need an investment return that exceeds the inflation rate. Investing in stocks may offer the potential for growth that can outpace inflation. Learn more >>>
2) Stocks have a history of strong performance
In addition to outpacing inflation, stocks have historically outperformed other investments, such as corporate and government bonds and Treasury bills. While stocks are inherently more volatile than bonds and other types of investments, over the long-term, the rewards of stock investing have outweighed the short-term volatility. In fact, if you were to look at the stock market for a 10- or 20-year period, you would see that the possibility for positive returns increases dramatically over time. Learn more >>>
How can you manage the risks associated with stock investing?
1) Diversify with growth and value stocks
Companies that exhibit above-average earnings growth potential are typically considered growth stocks. Companies that are undervalued and selling for less than they may actually be worth are considered value stocks. Because of their distinct characteristics, growth and value stocks typically prosper in different market climates. Including both investment styles in a portfolio may be an effective way to increase your investment opportunity and reduce overall portfolio volatility. Learn more >>>
2) Diversify with large-, medium- and small-capitalization stocks
In addition to style, stocks can be categorized by a company’s market capitalization – or size. Larger companies, typically older and more established, offer slower, more steady growth than small- or mid-capitalization companies, which may offer more rapid earnings growth potential as they are still in the emerging or growth stages of their development cycle. Consequently, small- and mid-cap stocks generally carry greater risk and volatility than large-cap stocks. Like growth and value stocks, small-, mid- and large-cap stocks may not perform in tandem. Diversifying your portfolio across all three capitalizations may enhance your risk/reward profile. Learn more >>>
3) Use systematic investing and mutual funds to your advantage
Stock mutual funds invest in dozens of individual stocks, spreading your investment across a broad range of companies and industries, providing the means for even greater diversification. What’s more, mutual funds offer the benefits of professional management, low investment minimums and systematic investment programs. Systematic investing allows you to invest a set investment amount at regular intervals, which may prove to be another smart risk-reduction tool. Learn more >>>
For more tips on Equity Investing view our Investment Tutorial, take our Investor Profile Quiz or use our Asset Allocator calculator. |