In my nearly 10 years of managing money for investors, I’ve come across many people who are too afraid to put their money into the stock market. Unless your parents have left you a huge trust fund, or you can sing like Adele or dunk like LeBron; you really don’t have a choice. Putting your money in bank CDs or savings accounts will not provide the kind of return that most of us will need to retire comfortably. It may may you feel better to know that your local bank has FDIC insurance, but NOT investing in the stock market is a much greater risk to your long-term financial goals. Many investors today remember the stock market crash from 2000-2002, or the 39% drop in the S&P 500 in 2008. But what many investors don’t know (or quickly forget), is that the U.S. equity markets have provided annualized returns of 10% plus since 1926. Consider the following chart: https://wp24.cryscampus.com/avistawealth/wp-content/uploads/2024/06/Dimensional-Growth-of-Wealth-1926-2017.pdf Small capitalization stocks (typically those under $2 billion in market cap), have annualized return of 11.45% and Large Cap stocks churned out 10.2%, while Long-Term Government Bonds (5.5%) and Treasury Bills (3.4%) have barely outpaced inflation (2.9%). In other words, a $1 investment made in 1926 would be worth $22,985 in Small Cap stocks and $7,347 in Large Cap stocks; but only $143 in L-T Bonds and $21 in T-Bills. Inflation clocked in at $14.
The message that all investors need to hear is that Capital Markets Work! Investing in the growth and profitability of the U.S. economy (and global economies as well) should be the foundation for all long-term investors. Somewhere down the road, there is bound to be another stock market correction. But if investors truly understand their risk profile and know the value of investing in multiple asset classes (including global stocks, bonds and alternatives), they can mitigate a large portion of the downside risk. Global diversification can provide a shock absorber to stock market volatility, allowing investors to maintain their investment discipline and avoid making emotional trading decisions which can tank their long-term success. At Avista Wealth Management, we specialize in developing globally diversified asset class portfolios. Depending on a client’s age, income, assets and risk profile, we can build a financial plan that utilizes a broad range of stocks, bonds, real estate, insurance and other alternative investments that can assist investors in reaching their financial goals. If you should have any questions, please do not hesitate to give us a call.