Читать книгу Personal Finance After 50 For Dummies - Eric Tyson - Страница 97

Investing in stocks is one of the most accessible ways you can invest for long-term growth. Stocks, which are shares of ownership in companies, historically have produced returns averaging about 9 percent per year. At that rate of return, even without adding to your investment, your money should double about every eight years. Thank the rule of 72 for this doubling. The rule of 72 says that if you divide 72 by your annual return, you’ll determine about how many years it takes to double your money.

When companies go public, they issue shares of stock that can be bought on one of the major stock exchanges, such as the New York Stock Exchange. As the economy grows and companies grow with it and earn greater profits, stock prices generally follow suit. Stock prices don’t move in lockstep with earnings, but over the years, the relationship is pretty close. In fact, the price-earnings ratio — which measures the level of stock prices relative to (or divided by) company earnings — of U.S. stocks has averaged approximately 15 during the past century. Although the ratio has varied and crept above 30 and gone as low as 6, it tends to fluctuate around 15 (it has been slightly higher during periods of low inflation and low interest rates).

Be forewarned that the U.S. stock market, as measured by the Dow Jones Industrial Average, has fallen more than 20 percent about every six years (the declines in the early and late 2000s were much worse). That’s the bad news. The good news is that these declines lasted, on average, less than two years. So if you can withstand declines over a few years, the stock market is a terrific place to invest for long-term growth.

If you’re investing in stocks, keep the following two suggestions in mind to help you build wealth faster in the stock market:

 Reduce fees and commissions while investing. Not only does excessive trading lead to your possibly being out of the market on the best days and reduce your returns, but it also can increase your transaction costs and taxes. A simple way to stack the stock market odds in your favor is to minimize fees and commissions when investing. That means after you make an investment, you must resist the urge to buy and sell, which raises your fees and commissions. All things being equal, lower commissions and fees paid to purchase and hold investments increase your investment returns.

 Regularly save and invest. Thanks to the miracle of compounding, if you save and invest $5,000 per year in a tax-deferred account returning an average of 10 percent per year, you’ll have about $440,000 in 20 years.