The stock market has been on a tear for the past few years soon after The Great Recession of 2008. In 2013, The Dow Jones was up 26%, the S&P500 surged over 29%, and the Nasdaq closed up nearly 40% for the year. Very impressive returns! However, many people are still getting over and recuperating from the days of easy credit, using home equity as an ATM machine, and buying on borrowed monies. Saving and investing was put on the back burner because discretionary spending and living off of credit cards presented the illusion of making it in America. The Great Recession put that non-sense back into perspective. Investing in stocks and mutual funds should always be a priority in any situation. About 52% of all Americans own stocks, either directly or indirectly. In fact, from a Pew Research Center survey, more than 55% of Whites are invested in stocks, compared with 28% of Blacks and 17% of Hispanics. Among other things, to build future financial independence, prepare for a comfortable retirement, develop generational wealth transfer strategies, and combat poverty, African Americans have to embrace the stock market and here are 5 reasons why we should own stocks and mutual funds right NOW:
1. Over time, you can become wealthy by investing in stocks and mutual funds.
By far, the most popular investment choice for African Americans in the past (and still today) has mainly been real estate. Many Black people state that they prefer real estate over stocks because it’s less risky. Well, that is simply not true if you recall what happened to the U.S. housing bubble which triggered the recession of 2008. The housing market tanked! So, real estate can be risky as well if you don’t understand the industry. I found that the real that African Americans steer away from stocks and mutual funds and consider them risky is because they simply don’t understand them and how they work. They were never taught! Can real estate be a risky investment and/or as risky as investing in the stock market? Considering the 2008 real estate debacle in the U.S., you bet it can be. But you didn’t go out and sell your house either, did you? No way! Well, people need to look at the stock market the same way. For an example, if investors still held on to their investments today of those purchased since the 2008 Great Recession, it is fair to say that the majority of them have witnessed an significant increased in their portfolios. You see, there will always be ups and downs in the housing market and in the stock market -but over the years – both industries tend to do rather well. In fact, the average return on equities (stocks/mutual funds) over an average 10 year period is close to 10%. In that same time frame, the average return in real estate is approximately 6%. You be the judge of risk. By just consistently investing a sum of dollars every month into a diversified portfolio of stocks and mutual funds over a period of time will more than likely reward you with a big payday in the near future.
2. There is this idea that the best way to avoid risk is by seeking safety.
Since 1926, investments have provided the highest return for the long-run compared to other alternate investment options. After net of inflation and taxes, common stocks are by far the safest financial instruments to protect your purchasing power. Many people tell me that their ideal investment is to have a very nice return without any risk. Well, I simply tell them that they are living in dream-land. That doesn’t exist. You are rewarded for risks you take in life. No risk, no reward. Running in safety- mode is a guarantee that many people will essentially spend most of their life living paycheck-to-paycheck and the probability of retiring in poverty. There are those who are blinded by the idea of leaving most or all of their money in a bank account or planting most of their retirement 401(k), 403(b), 457, and IRA accounts in the most conservative stable funds they offer. That is a sure-way of losing the purchasing power of your money. Today, the average savings account generates a measly 0.06% and some of the largest banks pay rates as low as 0.001%. So, the guaranteed way to live in poverty and struggle financially paycheck-to-paycheck is to avoid risk at all cost, run and hide, stay very conservative, and simply seek safety. Those are the worst things you can do! Seek growth stocks and mutual funds.
3. The great long-term risk of stocks is not owning them.
On July 15, 1932, the Dow Jones Industrial Average was 50.62. On June 15, 1961, a few years prior to the Civil Rights March on Washington, the Dow closed at 691.27. In Ronald Reagan’s second term as President, the Dow closed at 1,306.34 on June 12, 1985. On June 12, 2000, the Dow Jones closed at a whopping 10,564.21. Wow, it grew 10 times higher in just 15 years! Even after the Great Recession of 2008, as recent as October 2, 2013 – five years later – the Dow closed at 15,133.14. On January 10, 2014, the Dow Jones closed at 16,437. Today, the Dow Jones closed at 17,100.18. Wow! Still moving up. So, what is the point in all of this? There will always be catastrophes, floods, wars, global crisis, debates, racism, etc. But as the clock continues to tick, the stock exchanges and those who own stocks and mutual funds has continued to rise over the years. The right time to buy stocks is NOW. The sooner you begin the better. The greatest risk that anyone can have is not owning them.
4. The spirit of innovation is alive and well.
Banks and corporate balance sheets are very strong at the moment in America. Many of these companies have down-sized and laid-off thousands of employees and now run a meaner and leaner corporation. U.S. corporations are cash rich holding over $2.2 trillion in cash on their balance sheets. They have been extremely slow and deliberate to hire and rehire employees. As such, their profit margins continue to break all-time records. The incredible rise of China, India, and other emerging markets show positive growth over the long term for the global economy. The technology industry has been absolutely tremendous as new young promising companies are always on the cutting edge. It is always exciting to explore, research, and possibly invest in some of these companies – and do well – instead of sitting on the sidelines watching the rich get richer.
5. One of the best and easiest ways to own mutual funds is through your company’s employer plan such as a 401(k), 403(b), and a 457 plan.
Unless you work for your local city, state, or federal government, pensions are just about obsolete and no longer exist. Your employer and the government has now left the financial responsibilities up to you to decide your retirement fate. The number of citizens in this country will find themselves living in poverty because many of them do not have the experience or aptitude about the world of money management. If you haven’t already done so, it’s critically important that you begin contributing as much as you can on a monthly basis into your employer’s retirement plan. There is a good chance over time you may be able to build quite a cushy retirement portfolio. At the end of your working days, your retirement account will be determined by how many years you’ve invested and the dollar amount you’ve contributed. Let’s take a look at an example. A 45 year old begin investing $200/month for 20 years and receive an annual return of 10%. At age 65, this investor will have accumulated $144,797. If their employer offered a 50% match (FREE MONEY), the end result would be $217,196. Not bad! If this investor would have begun accumulating $200/monthly at age 35 (10 years sooner), he/she would have $415,858 in the portfolio. It will result in a $623,787 account if the employer provided the match. Wow!!! Shame on you if you aren’t taking advantage and investing in your employer’s retirement plan at work.
One of the most powerful avenues to build an adequate retirement portfolio, achieve financial independence, send your kids to college, give to charity, and provide generation wealth transfer efforts to the next generation is investing in stocks and mutual funds. The lack of financial educational classes and courses throughout grade school and the absence of kitchen-table talks about money with our parents is one of significant failures in American culture. Excessive spending, looking good, and keeping up with the Joneses, and maximizing credit cards have become the action plan to fake-it like we-made it. While things may look impressive on the outside there are serious financial ailments happening in the inside. Without a proper financial plan and strategies to increase wealth in our society today, it will become harder to maintain a quality lifestyle that this country was built on. Investing in stocks and mutual funds is a great way to achieve financial independence. The sooner you start the better you will be down the road. Invest TODAY!