The stock market can be highly volatile: The stock market can experience extreme fluctuations in short periods. For example, during the COVID-19 pandemic, the S&P 500 fell 34% from its all-time high in just 33 days. However, over the long-term, the stock market has generally provided positive returns.
Historical returns on the stock market have been positive: According to historical data, the average annualized return for the S&P 500 from 1926 to 2020 was around 10%. However, past performance does not guarantee future results.
Diversification is important for managing risk: Investing in a diverse range of stocks can help mitigate the risk of individual stocks underperforming. Diversification can be achieved through investing in mutual funds or exchange-traded funds (ETFs).
The stock market is affected by many factors: Economic indicators such as interest rates, inflation, and GDP growth can affect stock prices. Other factors, such as company earnings reports and global events, can also have an impact.
The stock market has experienced long-term growth: Despite short-term fluctuations, the stock market has generally grown over the long-term. For example, the S&P 500 has returned over 18,000% since its inception in 1926.
Timing the market is difficult: Attempting to time the market by buying and selling stocks based on short-term predictions is often unsuccessful. For example, investors who tried to time the market during the 2008 financial crisis would have missed out on the subsequent recovery.
Dollar-cost averaging can be an effective investment strategy: Investing a fixed amount of money at regular intervals, regardless of market fluctuations, can help reduce the impact of market volatility on an investment portfolio.
The stock market is not the same as the economy: The stock market can provide a snapshot of how investors perceive the overall health of the economy, but it is not always reflective of economic indicators such as unemployment rates or consumer spending.
Index funds can provide a low-cost investment option: Index funds track a particular stock market index, such as the S&P 500, and can provide exposure to a broad range of stocks at a relatively low cost.
Time in the market is more important than timing the market: Staying invested in the stock market over the long-term has historically been a more effective investment strategy than trying to time the market. For example, missing the best performing days in the stock market can significantly reduce overall returns.