While you can buy an array of individual stocks to emulate the diversification you find automatically in funds, it can take time, a fair amount of investing savvy and a sizable cash commitment to do that successfully. Think of it as the investing equivalent of not putting all of your eggs in one basket.Īlthough most investors gravitate toward two investment types-individual stocks or stock funds, such as mutual funds or exchange-traded funds ( ETF)-experts typically recommend the latter to maximize your diversification. Seasoned investors know that a time-tested investing practice called diversification is key to reducing risk and potentially boosting returns over time. (And, what’s more, it helps you come tax time by qualifying you for lower capital gains taxes.) Adopting a buy and hold strategy can help you achieve this goal. That means you have to stay invested for the long haul to make sure you capture the stock market at its best. While it might seem like the easy solution is simply to always make sure you’re invested on those days, it’s impossible to predict when they will be, and days of strong performance sometimes follow days of large dips. Missing the 30 best days actually resulted in an average loss of -0.4% annually.Ĭlearly, being out of the market on its best days translates to vastly lower returns.The annual return was just 2% for those who missed the 20 best days.For investors who missed just the 10 best days in that period, their annual return was only 5%.But, if you went in and out of the market, you jeopardized your chances of seeing those returns. Don’t believe it?Ĭonsider this: The stock market returned 9.9% annually to those who remained fully invested during the 15 years through 2017, according to Putnam Investments. That’s important because investors who consistently trade in and out of the market on a daily, weekly or monthly basis tend to miss out on opportunities for strong annual returns. What does that mean? In short, one common way to make money in stocks is by adopting a buy-and-hold strategy, where you hold stocks or other securities for a long time instead of engaging in frequent buying and selling (a.k.a. There’s a common saying among long-term investors: “Time in the market beats timing the market.” Which begs the question: How can you make money in stocks?Īctually, it isn’t hard, so long as you adhere to some proven practices―and practice patience. But the tricky thing with stocks is that while over years they can grow in value exponentially, their day-to-day movement is impossible to predict with total accuracy. Ask any financial expert, and you’ll hear stocks are one of the keys to building long-term wealth.
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