The Economic Reasons for Buying a Stock

The economy in the United States today is tanking. It doesn’t take a financial analyst to tell you this fact. People are wary now more than ever about investing their money in the stock market, so they’re seeking other vehicles in which to invest in order to protect their net worth from market dips and crashes. But is investing in stocks still a viable option? Many analysts say yes. The economic reasons for buying a stock are plentiful, and they’ll continue to be great tools to diversify your portfolio and build up your long-term assets.

The Economy is Looking Up

Recently, the Federal Reserve announced that the economy is improving. Most people still believe the opposite, which makes this a great time to buy. The stock markets took notice of the Fed’s announcement, and, in response, stocks rallied dramatically, the price of gold fell yet again, and bonds were buried.

Currently, the S&P 500 is still coasting into neutrality, the Nasdaq has posted slim gains, and the Dow is trading with only a thin loss. Although this news isn’t spectacular, volatility is down, which means that buyer confidence is slowly rising. Right now, the Volatility Index, which many refer to as the “Fear Gauge” has enjoyed a sharp downturn as well. This development is making the waters a little safer for those who are weighing the economic reasons for buying a stock.

What This Means for the Future

As most people know, investing is not an exact science. Depending on the year, the risk involved will vary wildly. After such a particularly vulnerable couple of years, the market has suffered a rough reputation. Does this mean that you should not invest in stocks? Of course not. Investing is always very risky when you do it on a year-by-year basis, but historically, longevity is the key to building long-term wealth and stability for the future. Therefore, the longer you keep your money invested, the lower the perceived risk.

A great statistic to remember when investing in stocks is that not one 30-year period has ever seen returns of less than 5% per year. In fact, the average long-term rate of return has been 9.4% per year. Therefore, when you do your long-term planning, expect to earn rates of return from about seven to 11%.

To be a smart investor, you need to recognize that the trend is always positive over the longer term. Don’t listen to naysayers who warn you not to invest in stocks – the economic reasons for buying a stock are there, you simply must commit to creating a long-term strategy for your portfolio.