Investor Education | Learn from stock market history
If you have been investing in the stock market long enough, you have likely known good times and bad. It is the inherent nature of the market, as measured by the Dow Jones Industrial Average (DJIA), the Standard & Poor's (S&P) 500 Index and other well- known indicators, to fluctuate (see page 3). At other times, the market may be relatively stagnant.
But a main concept gleaned from a historical perspective is that the stock market has proven beneficial to those investors who stay the course over the long run. Thus, the longer the period you invest, the more likely you will be able to weather the inevitable down times.
Conversely, it is difficult to try to "time" the market, not to mention that it is quite a risky proposition. Investors tend to panic when they hear or see reports of a declining stock market,yet remaining invested in the market over the long term has historically rewarded investors. Although short-term fluctuations may appear to be random, the stock market tends to reflect the overall growth and productivity of the economy over the long run.
Assuming that you decide to commit to being a long-term stock market investor, you will need to choose investments based on your personal objectives, your tolerance for risk and your time horizon for investing—if you have not done so already. This will normally encompass principles such as asset allocation and diversification, buying and holding strategies, and understanding and implementation of tax-related decisions. Unless you are a seasoned and sophisticated investor, professional guidance is recommended.
Of course, past performance is no guarantee of future results—if the stock market went up last week, it could easily trend down next week, or vice versa—but including stocks in your portfolio is generally sound financial practice. Do not be motivated entirely by history, but try to learn from it.
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