The Nature of stocks
When it comes to stocks, most people become cautious. For most , when they hear the term stocks, what comes to mind is: “Scam! Untrustworthy! Unpredictable! You’ll eventually lose all your money! I heard one of my friends lost a lot of money in stocks! The term stocks for most people is a very negative term, and it is filled with negative emotions. You probably heard people advise you before: “never put money in stocks! You’ll lose it all!”
Stocks in itself is an investment tool, just as much as investing in John’s Ramen shop. The only difference is that many other people are investing as well. Stocks in general are growing assets, sometimes more, sometimes less.
Let's look at the Standard & Poor 500's chart below: (SP500 is an index that contains 500 publicly traded companies that best represent the prospects of United States Stock Market.)
We can observe on the chart, although there are ups and downs on the chart, the trend of the market is always going up, bit by bit every year.
If you invest in any of the so-called blue chip stocks, leave it there for a few years, eventually it’ll grow a certain percentage. As long as you have invested in a company that has a steady growth each year, and keep the money in there, it’ll grow. Look at any of the blue chip stocks, compare it to 5 years ago, how much has it grown? The slower ones probably grew around 100%, but the stronger ones probably around 1000-2000%.
Stocks have the tendency to expand as the market expands. Compared to 100 years ago, the Dow Jones industrial Average was at 1,000 points, and in 2020, it is at 23,700 points(2370%). If you put $1,000 in 1920, in any of the Dow Jones stock, you’ll have on average $2,370,000. And that is without the effect of compound interest.
What about stock market crashes? Sure, stocks sometimes make corrections. It probably will drop by 10-20% in a day or a week. For the general population, it is a signal to sell, and it is a reasonable one. People tend to be afraid of the unknown, and the possibility of losing their hard earned savings is a very emotional one.
I would tell you, unless the company gets completely destroyed in a natural disaster, the stock will eventually return to it’s previous glory. Don’t believe me? I will challenge you to look at any of the blue chip stocks chart, look at it for 5 years, and tell me the stocks tanked and never return to it’s high point? It rarely happens.