It seems like the most recommended investing strategy today, especially for people who don't want to pick individual stocks, is index funds/ETFs/"passive investing." The idea behind it is that the stock market will generally continue going up at an average of, what is it, 9% a year? So for those who have a time horizon of several decades, they should just throw their money into index funds and leave them be, riding out every correction along the way.
But I'm wondering whether this really is a safe strategy? Yes, the stock market has historically gone up and has recovered from every correction. But how do you know this will continue into the future? The S&P500 could very well hit 3000, but how can you be sure it'll hit 4000, 5000, etc? Of course there's inflation, but that doesn't alone explain the stock market's perpetual rise. Is it possible that the stock market can plateau, or correct and never recover?
For example, the Nikkei hit a peak, and then has never recovered. If you did passive investing and invested in 2000, you'd have no gains today. I've heard though that the US economy is different because it composes a much larger segment of the global market.
Personally, I am about 25 years old with a family and I recently got into investing. I have about $70,000 that I can invest. I started 2 months ago, invested $15,000, and I'm down 10% because of severe drops in several stocks as well as the rocky market these past few months. If I invested everything in a broad market index fund, however, I'd be up. And many probably would advise me to put most of my money in index funds right now, ignore short-term corrections, and just sit on it for several decades, expecting my wealth to compound over time and give me a nice retirement. Well, that's the point of this post - I'm questioning that.
Submitted August 19, 2017 at 03:17PM by shoozerme http://ift.tt/2wcGGYm
