Three Scenarios for Stock Investment

Who led the digital transformation in your company? CEO? CFO? CIO? No. It was Covid-19. Sometimes the lessons learned from an economic crisis are so good, they leave the world economy better off in the long term.

Stock Investing at the WORST possible time

If you had invested in the stock market in the summer of 2007 right before the Subprime Mortgage Financial Crisis, you would immediately have lost over 50% of your investment, yet today your total return would still have been above 60% of your overall investment.

Over the past 80 years, stocks have on average yielded a real return of 7% per year. Compare that to 6% for property (incl. rent from tenants), 4% for bonds, 0% for commodities, and -4% for cash.

On any given day, stock prices can easily go up or down by 10% and can double or halve in a single year. It is those market movements that overall average out to the strong 7% in the long term.

7% per year is equivalent to doubling the real value of your investment every decade. That means that after one decade on average you have 2x the initial investment, after two decades 4x, then 8x, 16x, 32x, etc.

Investing at the BEST possible time

Many people are now asking themselves if it is finally time for them to make a financial decision and get into the stock market, as prices have generally declined.

Warren Buffett famously said: “Price is what you pay. Value is what you get.”.

For some companies the ‘deal from the lower price’ is equivalent to If the local supermarket offers Coca-Cola for half price, but the Coca-Cola is also half size. I.e. not really a deal.

For other companies and major corporations, however, their share price reductions may not reflect fairly, that they are quite crisis-resistant, or may even benefit from it. Some stocks may have gone up in price to reflect the increased profitability they are likely to achieve, but, for the right stocks, the price may not have gone up enough to fully reflect this yet.

Investing at the most AVERAGE of times

It is difficult (and unnecessary) to achieve perfect market timing in the short term. For most investors, it makes best sense to invest steadily over time. I.e. setting aside an amount of the yearly, quarterly, or monthly budget for the investment process, and thus averaging the investment timing out over time. Some of the monthly investments will have been made at a discount and others at a ‘too high price’, but those will average out.

In the long term, such an approach is likely to leave many investors very satisfied.

Jeppe Kirk Bonde is an Elite Popular Investor on eToro. Residing in the UK, he has a background in management consulting and an M.Sc. in Finance and Strategic Management from the Copenhagen Business School.

adrinvestors.com

You should seek advice from an independent and suitably licensed financial advisor and ensure that you have the risk appetite, relevant experience and knowledge before you decide to trade. Under no circumstances shall ADR Investors or eToro have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to CFDs or (b) any direct, indirect, special, consequential or incidental damages whatsoever. Trading with ADR Investors via eToro by following and/or copying or replicating the trades of other traders involves a high level of risk, even when following and/or copying or replicating the top-performing traders. Such risks includes the risk that you may be following/copying the trading decisions of possibly inexperienced/unprofessional traders, or traders whose ultimate purpose or intention, or financial status may differ from yours. Past performance of an eToro Community Member is not a reliable indicator of their future performance. Content on eToro’s social trading platform is generated by members of its community and does not contain advice or recommendations by or on behalf of eToro | Copyright © adrinvestors.com | an eToro partner.

Past performance is not an indication of future results.
General Risk Disclosure | Terms & Conditions

Create your website with WordPress.com
Get started
%d bloggers like this: