Is the Stock Market Safe Again Since the Crisis?
After the crisis that hit both the US and global stock markets, a lot of investors lost confidence and sold off all their holdings, and got out of the market. However, the world economy has grown as of late, and it is safe to venture back into the market again. Historically, the market has afforded positive returns, above-inflation rates, and it has allowed investors to build balanced portfolios.
To be successful in today's stock market, practice moderation in your investing and be realistic in your expectations. And, like so many other things in life, you can prepare for the future by taking a closer look at the past. In taking a closer look at the past few decades, there are a few recurring principles of investment. After each major market decline, conditions have improved rapidly. Also, the stock market is a major economic indicator, meaning that a prolonged improvement usually signifies emergence from a recession.
Looking at the world economy since the Great Depression, you can see how closely its fortunes are tied to those of the stock market. Many of the factors contributing to this are purely psychological- the market is forward looking (meaning that analysts are always thinking ahead to the next earnings period). Furthermore, consumers see a rise in the stock market and take it as news that the worst of the economic downturn is over- as unemployment is declining, mortgages are easier to get, and property values are on the rise again.
History has also demonstrated that diversifying one's holdings is a better approach than trying to pick the winner every time. Studies have shown that picking a single "right" investment only adds an average of five percent to a portfolio's performance, and that the timing of an investment only augments a portfolio by less than two percent.
In most people's opinion, the stock market is safe after the worldwide economic crisis- but just as before, a moderated, diversified approach is the best way to minimize risk and maximize return on investment.