Investing in global stock markets isn’t appropriate for everyone and not everyone is appropriate for stock market investing. However, if you are planning for the future and want to make sure you don’t outlive your money it usually requires some degree of investing in the global stock markets.
Here is a stock market investing checklist to help you decide if it is appropriate for you.
- Do you believe the global economy will be stronger in the future?
- Do you want to invest in the great companies of today & tomorrow?
- Do you believe there will continue to be innovations that will improve the way we and the rest of the world work, rest and play?
- Do you want your money to work while you are sleeping?
- Do you accept that the effect of inflation is the most harmful thing for your long-term financial wellbeing?
- Do you know that the compounding effect of dividends re-invested will have the greatest positive impact on your long-term wealth?
- Do you understand the slow but inevitable power of compound interest?
- Are you able to act with patience and discipline when everyone else is panicking or looking for quick returns?
- Are you prepared to leave your money untouched for at least 5 years?
- Can you accept periodic falls in value (possibly in excess of 67%)?
If you believe in the capital markets and know that, whatever short-term shocks happen, the global economies will be better in the future than they are today you can be confident that the long-term value of any capital invested in a broad and diverse range of the great companies of today and tomorrow will be higher than today.
If, however, you take the pessimistic view that the world is going to hell in a handcart and capitalism is to blame it is unlikely you will have the confidence and patience to expose your money to long-term investing.
Instead, if you can stomach the thought, you will be left with leaving your money in bank accounts or perhaps lending it to the Government. From which, you can be confident the capital will be safe but also be sure that the steady creep of inflation will erode it’s purchasing power.
Investing in the stock markets can be a rocky road. I can tell you with absolute certainty that there will be repeats of the 1973/74 crash when the FTSE All Share fell in value 67% over two years. Or the ’99 Tech bubble bursting when the loss was 43% over two years, followed then by the Credit Crunch when the index lost 41% in just over 1 year.
But I can also share with you the truism that, just as you need rain to see a rainbow, equity markets need short-term falls in order to grow over the long-term.
There is no other asset class that provides the growth potential that shares do and it is down to the simple fact that innovation, entrepreneurship and competition inherent in global capitalist economies ensures that well-run companies increase in value and reward investors through rising share prices and regular dividend payments.
If you want to discuss investing your capital contact me.