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| Source: Center for Research in Securities Prices |
JUDGING BY THE FACT you've taken the trouble to find this Web page, our guess is you don't need a lot of convincing about the wisdom of investing.
You've probably been beaten over the head with the notion that you need to start early to fund your retirement or send your kids to college. And you've likely heard your fill about the fortunes being made in the stock market -- some of them by people you figured were severely challenged by mowing the lawn, let alone investing wisely.
But even if you are enthusiastic about getting started, jumping in can be daunting. That's why this set of investing courses begins with a simple dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make a considerable amount of money in the markets. You merely need patience and a willingness to put your savings to work in a balanced portfolio of securities tailored to your age and circumstances.
Sources: Bankrate.com, Center for
Research in Securities Prices |
To see why, you have to understand how investing works. It's not about throwing all your money into the "next Microsoft," hoping to make a killing. And it has nothing to do with getting a stock tip from your brother-in-law and clicking over to E*Trade to buy as many shares as you can get.
Investing isn't gambling or speculation. It's taking reasonable risks to earn steady rewards. As we'll see, it works because buying stocks and bonds allows you to participate in the relentless growth of the world's economy, which hardly follows a straight line, but does trend upward over time. It's also true that the longer you stay invested, the faster your money will grow. This neat trick -- called the Power of Compounding -- is a mathematical certainty, something you can bank on.
We'll explore these concepts in the following two lectures, but before you move on, we encourage you to take a moment -- if you haven't already -- to play with the applets on this page. The first is simple. It lets you see how much you'd have today if you had invested your money in large-cap stocks back in 1980. Given that this group has an average annualized return of 14.5%, the growth is remarkable -- and significantly higher than the historical norm. The other compares the annual rate of return for all stocks (which is 12% from 1926 through 2004) with that of a typical high-yield savings account (2%). As you can readily see when you zoom out to 25 years, if your money is sitting in a bank somewhere, you're definitely missing out big.
