When it comes to investing in the stock market, I want you to forget the 10% average return annually. This figure is frequently used to justify stock market investments. It suggests that if you leave your money in the stock market long enough, you are guaranteed a 10% return.
However, this isn't the full truth. It often is misleading to beginning investors.
It is simply too general. It suggests that you should expect a 10% annual return on any investment you make in the stock market. This just isn't true at all. Simply purchasing one or two stocks will not give you a 10% return. You must invest strategically and wisely in order to see a 10% or better return on your investment.
And while the market may be doing that well, that means nothing to your individual stocks. When you invest in individual stocks, you aren't investing the entire market. What the market does isn't important -- it is what your stocks do that matters to you.
Keep your focus on the portfolio of stocks that you create and how it will perform in the future. That is what will affect you. Don't simply assume you can buy into the "market" and see great returns without any work at all. You still have to manage your investments to make sure that they are giving you the returns you want to see.
Investing shouldn't be about beating the market. Many financial advisors will point out a mutual fund or other investment that is getting over a 10% return annual -- "better than the market." But what does that really matter. If the market you are looking at is up by 2%, you could beat it with a portfolio up 4%. But what you need to look at is what you are earning for your investment goals. What the market is doing compared to you won't matter when you need to use your investments for retirement.
Start with making wise investment decisions. Know what your goals are and how you need to invest to achieve them. If you are young and saving for retirement, you have time to be aggressive. If you are older and nearing retirement, you should be more conservative. Don't focus on what percentage you are getting right now in making your decisions. Make solid choices in good companies. And let time work for you.
Good financial advisors will point out to you that the market has been up and down, but that it has "averaged" a certain return. The truth about this statement is that long-term investments are best for the vast majority of investors. With time, your risk is often reduced. The market goes up and down frequently. If you invest wisely and manage your portfolio correctly, you may see the market work for you.
Long-term investors need to manage their accounts and focus on purchasing quality stocks that will meet their financial goals. Forget about the 10% and look at what your stocks are doing for you.
Martin Lukac http://www.MartinLukac.com , represents http://www.RateEmpire.com , an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com