People nowadays are living longer than ever before in the history of mankind. As humans age expectancy increases, planning for retirement is more vital now than previous generations. Although your twenties are a decade filled with experimenting, exploring, and discovering yourself, it is also the right time to begin thinking about your retirement income and how you will support yourself when your golden work years are long gone. In this article, I am going to dispel some common myths about the stock market and offer encouragement as to why you should start putting some money aside for a retirement account.
First, the stock market is not rigged for retail investors. The stock market is not overrun by wealthy individuals or billionaire hedge fund managers. All the companies on Wall Street are supported by honest accounting reporting techniques in addition to their reported profits. Whether it be Proctor & Gamble or McDonald’s, each company on Wall Street is a real entity that produces profits and there is nothing phony about their operations either.
Second, equities are the best place to reach a high return on investment. Since the 1980’s, equities have beaten commodities, bonds, certificate of deposits, and cash in terms of total return. Commodities are often volatility and their price fluctuations are not for the weak. Bonds are an important supplemental source of income and hedging against risk in a portfolio but should not be the main source of investments. Holding cash in a low yield checking account or certificate of deposit is also a faulty investing decision that will not make you any wealthier. Finally, holding cash “under your mattress” is a terrible investment strategy because of the risk of inflation. Equities are volatility and will have their peaks and valleys but in the long run they are more likely to earn you a higher return on investment than all other investment strategies available today.
Finally, handling the question of valuation is always a tricky one. Yes, some equities have gone up tremendously since the 2009 bottoming of the Dow Jones Industrial Average, S&P 500, and NASDAQ. However, it is important to remember that growth companies that earn tremendous profits cause companies to be valued at higher prices than low growth companies who produce average profits. As the economy continues to improve and competition among firms mean higher earnings per share and dividends, learning to understand the true value of a company will be key in determining whether that equity is worth investing into.
Out of all the asset classes, equities are still the number one option for individuals in their twenties to invest their hard-earned money in. Whether it is a retirement account at work or a mutual fund, investing your money in equities will provide a higher return than any other asset class and provide you with a sense of relief when your head hits the pillow at night
