From the Rummel Wealth Management mailbox, where, as always, these are real questions from real readers.
Mitch in Bay City writes: Ed, with all these market ups and downs, should I remain invested? I'm a little nervous when I watch the news lately. Help.
Ed: Hi Mitch. After 12 months and the majority of the last 11 years providing pretty consistent stock markets moving up, we saw significant volatility return to the stock market recently. Uncertainty generally causes stock markets to move at this speed. Uncertainty is partially based on Presidential primaries and a significant global health scare. So we have to go back to why do we invest in the stock market in the first place?
The Main Reasons We Invest
1. Long-term returns of the stock market help outpace inflation and build wealth over time. Albert Einstein is credited with saying ”compound interest is the eighth wonder of the world”. Whether Mr. Einstein actually said this or not, the concept remains valid. Individual investors should remain invested according to their goals, risk tolerance, time horizon, etc. through the ups and downs so their money makes more money over time. That’s where the power of compound interest comes from... time in the market, not timing the market.
2. Investing over the long-term allows investors the financial independence to control their freedom in the future. Having $30,000 set aside in an investment account that you can access at any time without penalty gives you the ability to tell the man to "take this job and... find some one else". In other words, investing provides the ability to zig when others zag, to be your own person, and to march to the beat of a different drum.
3. Maybe (like each generation before us) you worry about the decay of America and its Christian morals on which this country was founded. By investing now, you have the ability to help future generations get a head start with education, training, and other opportunities. Perhaps an older grandchild seeks to start a business. You could help them out because of your choice to invest 30 or 40 years ago.
4. Lastly, maybe you support the Democratic Party, the Republican Party, the Libertarian Party, the American Red Cross, Rotary International, Greenpeace, Doctors Without Borders, or the Bay City Polka Club. By investing, you have the ability to support any, all, or other causes that best align with your personal beliefs.
So Mitch, turn off the financial news. Take a walk with your wife on the sidewalks and shorelines of Bay City. Enjoy the sights and sounds of LIFE while your investments compound (hopefully) over time!