The Fool’s Brian Stoffel put this story in an even easier-to-understand context in February 2012, when, in his fictitious short story he undertook explaining how short-minded investors would have missed out on big gains in The Coca-Cola Company (NYSE:KO) versus long-term investors. Had a short-term investor sold holdings after 10 years in Brian’s story, he or she may have netted a 2,500% gain, but were the same investor to hold from 1920 through the present day, that person would be up well over 1,000,000%, inclusive of dividends and share price appreciation!
There is no such thing as a wrong amount to invest with
One of the more superfluous rumors that’s been floating around for decades is that it’s not worth investing in the stock market if you don’t have enough money to get started. This is blatantly wrong! If you have $200,000 or $200, it’s always in your best interests to put that money to work for you.
Last week, the Fool’s macroeconomic guru, Morgan Housel, demonstrated this point to a “T” when he examined the effect of wealth building over time. According to his calculations, a person in his or her 20s could see each dollar saved and invested turn into $10-$18 in future value. Even if that only means $20 per week, that’s possibly $200-$360 in future value based on the standard historical returns of the market!
Source: Rafael Matsunaga, Flickr.
You have to invest to beat inflation
Putting your money under the mattress might preserve your nominal money, but it won’t help you over the long run as prices continue to rise and make what money you currently have less valuable. Anyone who hopes to stay ahead of the game needs to invest.
Keep in mind that there are multiple ways of beating inflation and retiring well without risking your entire nest egg. It’s perfectly fine to be risk-averse, which is what investment-grade and government-issued bonds are for. However, other ways of investing safely do exist, including buying into basket ETFs that spread your assets, along with the assets of others, among a number of companies. One great idea here would the iShares MSCI USA Minimum Volatility ETF (NYSEMKT:USMV). Composed of 134 large-cap, low-volatility names such as PepsiCo., Johnson & Johnson, and TJ Maxx parent TJX, the iShares Minimum Volatility ETF bears just a 0.15% annual expense, yields slightly better than 2% annually, and is only 78% as volatile as the S&P 500.
Getting started is easier than ever
One of the often forgotten reasons investors fail is that many are simply too overwhelmed or worried about their lack of knowledge to even get started. Luckily for you, the Internet has made the ability to learn about the market and individual companies easier than it’s ever been.
The Motley Fool’s co-founders (and brothers), David and Tom Gardner, developed the 13 Steps to Investing Foolishly specifically with that skittish investor in mind who’s always been curious about investing in the stock market but has been terrified of his or her lack of knowledge or been wary of how to get a foot in the door. My suggestion is, if you’re one of the 44% who exclaimed they’d never invest in the market again, one of the 58% who’s lost faith in the market, or one of the many on the outside looking in, read over and implement these 13 steps.
Obviously you aren’t going to be right with every investment, but all it takes is a few big winners and a lot of time for you to be sitting pretty in an early retirement.
The article 5 Reasons Most Investors Fail originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Berkshire Hathaway, Johnson & Johnson, and PepsiCo. It also recommends Coca-Cola.
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