The Stock Market will crash soon
My friend Daniel, who is learning about the stock market, sent me an article that predicted the possible end of the stock market bull.
Another friend, send me a graph and a quote on silver prices, suggesting that now is a nice time to buy.
I used to believe in trading the markets
I devoted 10 years of my life trading stocks.
This was my theory. I could buy stocks when they are going up and short sell them when they are going down.
I could make money both ways. I had some basic techniques which allowed me to believe that I could do that. I still think that it could be done.
This was the main problem. Stocks don’t go straight up or straight down. They zig-zag for long periods of time. My mathematical formula would tell me “buy,” then it would tell me “sell,” then it would tell me “buy again.” Even if I made money at the end of all that buying and selling, it turns out I would have made more if I had done nothing. If I would have just bought the index, forget about the market and go out to have fun with my friends, I would have been much better off.
Yes, the market will go down
I agree with the article that Daniel sent me. Yes, the market may go down. In fact, I know for certain that eventually, it will go down, And when it does what’s next? It will recuperate. It has always done so.
When the market goes down, that would be a time to buy some more stocks.
We should highlight that investing in one individual stock and investing in the market are two different things.
When a person invests in an individual stock, that stock might go down to zero. The company may go bankrupt. When you invest in the market, unless our capitalist system is destroyed, the market will always recuperate.
What about silver?
Silver, gold, coins, and other precious metals, they are all the same. They are non-productive assets. My friend might be right. Silver is at its lowest price ever and it may be a great buying opportunity. But what’s the opportunity cost? If you spend $1 in silver, you will not be able to spend that $1 on the stock market.
Over a period of 40 years, I can expect the stock market to grow at about 8% per year. What would be the return for silver? Since it’s a non-productive asset, most likely it will increase at the same rate as inflation.
What else is there?
The stock market has proven to be the best way to make money in the history of mankind. No other asset class can compare.
Take a long-term (more than 40 years) chart of any asset and compare it to the stock market, other assets will pale in comparison. Asset classes such as bonds, real estate, cash, gold/silver, all of them are laggers when compared with the broadly diversified index.
What is the average investor to do?
If you are in the accumulations stage of your life. Go stocks all the way. 100%. Once you have reached your goal, let’s say $1,000,000, then you can diversify in whichever way you want. You can go conservative (cash), or you can go the lottery stock route. It doesn’t matter. Your needs are taken care of.
In particular, I suggest broad-based index funds or ETFs. Buy the U.S. index, the Canadian index, an index that represents international holdings, Europe, Asia, Emerging Markets. You want to diversify your holdings in order to smooth the ride, but you want to be in the most productive asset category, which is stocks, and then sit down, drink some margaritas and watch your money grow.
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