Easier Money: Stock Investing Is for Wusses
When presented with stairs and an escalator, most of us take the escalator. Many of us dream of starting our own businesses, but we tend to put the thought out of our head, figuring it's safer and easier to just stick with our day job. Very frequently, we're wusses.
Thus, I read with interest an article by my Motley Fool colleague Morgan Housel, who declared that "Investing Isn't for Wusses." Sure, he's right that the stock market can be very volatile, which scares away many people. The S&P 500 (^GSPC) plunged a heart-stopping 37% in 2008 and dropped 10%, 13%, and 23% respectively in 2000, 2001, and 2002. Ouch.
People shouldn't avoid stocks because they're wusses, though. They often simply don't have enough information and perspective to see that stock investing is a money-making option that's hard to beat. In fact, it's perfect for wusses!
There Are Harder Ways to Make Money
Just about all of us need to accumulate money for our retirement. Thus, we need to figure out how to do so. Here are a bunch of possibilities to consider:
• Start your own company: It's hard. You'll fight tough odds, will likely not make much money for a while, and stand a good chance of losing a lot of money, too.
• Work two jobs: Sure, it might not be that risky to teach school and also prepare tax returns for others, but it can really tire you out and eat up time you might prefer to spend with your loved ones.
• Gamble: You don't even have to go to Las Vegas to do so. You can just buy lots of lottery tickets. It won't take long and won't tire you out, but you'll most likely be throwing your hard-earned dollars down the drain. Overall, in the long run, lottery players lose -- a lot.
• Invest in real estate: It sure looks easy. You buy a rental unit, sign up tenants, and then collect cash every month. But the market can turn against you. It might be hard to find tenants or to find good tenants who actually pay you on time. The value of your property can decline. You'll also have to pay for maintenance, repairs, insurance, property taxes, and more. It's hard.
Clearly, wusses who want to accumulate moola for retirement should probably avoid the paths above.
The Markets Don't Have to Be Scary
So consider investing in the stock market instead. Over the long haul it has outperformed bonds, bills, gold, and real estate. Sure, the stock market can be volatile, but that needn't scare you, as long as you're ready for it. Just know that the market will crash on occasion.
As long as you're investing for the long term, though, that's OK. If your retirement is, say, 15 or 20 years away, you should have time to ride out the downswing -- ideally while snapping up more shares at low prices. Many of the most successful investors have made millions or billions by just hanging on to shares of solid, growing companies through all their ups and downs.
It might seem that in order to make big bucks, you need to invest in obscure enterprises you've never heard of, but that's not the case. Many of the gains that the stock market offers come from boring old dividend-paying stocks. Over the past 10 years, dividends have added more than 2 percentage points to the average annual return of the S&P 500 -- in a meager decade. Indeed, from 1926 through 2006, more than 40% of the S&P 500's total return came not from the price appreciation of its component stocks, but to those companies' dividends.
Some stock investing can be risky and daring, but much of it can be rather mundane, like buying and holding big, predictable blue chips. You can add some bonds or bond funds to your mix over time, too, for more stability.
Investing Can Be Quite Easy
We wusses don't even have to break a sweat in order to invest. Here are some simple ways to get into the market:
• Take advantage of your employer's 401(k) plan or other retirement plan. Be sure you invest that money effectively, though. Leaving it in a money market fund, for example, won't let it grow very quickly.
• Invest in simple, broad-market index funds that track the returns of the overall market: An S&P 500 index fund or "total stock market" fund will work. You can often find these as options in 401(k) plans or you can invest in them on your own. Consider the Vanguard S&P 500 Index Fund (VFINX) or the similar exchange-traded fund SPDR S&P 500 (SPY). Any money you plunk in such a fund will automatically be invested in 500 of America's biggest companies.
• Another option that's been growing in popularity is the target-date fund: With these, you choose the one that's right for you based on your expected retirement year, and then over time the fund shifts its assets from stocks to bonds as you approach retirement. These can be quite handy, but be sure to look closely, as they vary widely in fees and performance.
• Add some solid dividend payers to your portfolio: No matter what the economy does, companies such as McDonald's (MCD), Procter & Gamble (PG), Coca-Cola (KO), and Johnson & Johnson (JNJ) are likely to keep making sales. You can grab a big bunch of dividend payers easily via a dividend-focused ETF such as the Vanguard Dividend Appreciation ETF (VIG) or the SPDR S&P Dividend ETF (SDY).
See? Investing in the stock market can be both rewarding and relatively simple. It's perfect for wusses.
Longtime Motley Fool contributor Selena Maranjian owns shares of Vanguard 500 Index Investor, McDonald's, Procter & Gamble, Johnson & Johnson, and Coca-Cola, but she holds no other position in any company mentioned. The Motley Fool owns shares of Coca-Cola and Johnson & Johnson. The Fool has sold short shares of SPDR S&P 500. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Procter & Gamble, Johnson & Johnson, and McDonald's, as well as creating a diagonal call position in Johnson & Johnson.