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Market Outlook

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Stocks most likely to increase in value over time

 

I have talked to a few people who view equity investing as “gambling.” I guess it depends upon your point of view. When you own equities (stocks) you cannot invest your money and watch it build day by day and month by month as you can with a Certificate of Deposit. Stocks vary in value; going up in a good market and down in a bad market based upon the profitability and growth of the companies you own and general economic cycles. That is why there is a risk-return trade-off. It means that if you invest in stocks you would expect them to provide a higher potential return than a Certificate of Deposit. Stocks are most likely to be profitable when they are held for a long period of time; it can be difficult to hold on to them in tough markets. Have you ever read headlines in the local paper like "The Stock Market Soared Today,” or “Stock prices Plunge?” If the signs on an elevator read "soar" or "plunge," you would probably take the stairs. 

I believe investors should put their stock portfolio in the same category as their home or other real estate. Real estate, like stocks, is most likely to be profitable when held for a long period of time. Unlike stocks, houses are likely to be owned by the same person for a number of years, usually seven. Compare this to the large percentage of all the stocks on the New York Stock Exchange that change hands every year. I strongly advocate a long-term approach when owning stocks or mutual funds. You usually can’t pick up the paper and get the value of your real estate on a daily basis; with stocks you can read the prices in the paper, a ticker tape flashes across the bottom of the TV and the radio gives market updates throughout the day. To sell a stock you merely pick up the phone and place an order – to sell your real estate is a more lengthy process. When owning stocks it might be a good idea to figure out a fair value for the companies you own; if the market is down hold on to it for a while as long as the quality still exists. 

Lastly, when you invest in real estate you generally know how to poke around in the basement and attic. There are experts that will check for roof leaks, rusty pipes, faulty wiring and look for cracks in the foundation. It is easy to check out the neighborhood, the schools and the taxes. There are general rules such as “Don’t buy the highest-priced property in the neighborhood.” That is a good lesson with stocks; you should always look for a fair value. It takes time to investigate a company you want to own. There are experts in the market to help you pick quality investments, they analyze companies, talk to the management, and review financial reports. There are many options for investing both in stocks, corporate and government bonds and many professionals that can make the process easier. There are money managers that will build a stock portfolio for you based upon your investment style or you can also use mutual funds. If you had bought Coco-Cola, General Electric or Wal-Mart and held it for several years or decades you would not have been disappointed.

Asset allocation is the apportionment of investment funds among categories of assets, such as cash equivalents, stock, fixed income investments, and such tangible assets as real estate, precious metals and collectibles. It is important to have ample cash for emergencies and to diversify your long-term holdings. There are many different formulas that can be used to suggest how much money you should invest in cash and other investments based upon your goals, resources, time horizon and risk tolerance.  Take the time to analyze all of your holdings and be sure they are quality investments and your asset allocation is right for you. 

 

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Nancy Hadley

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stock market, investments, money

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