historical stock and bond returns

Why I Used to Invest in Individual Stocks + Now I Don’t

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Many years ago, I was terrified of the stock market. I thought it would steal all of your money.

With depression-era parents, the anecdotal information about the stock market crash of 1929 seemed frightening. I believed that you could lose all of your money if you invested in the stock market. I started investing in my 20’s with a traditional stock broker and various versions of bonds and bond funds (and 1 stock recommended by my cousin). 

Over time, study and experience, I learned the basic characteristics of investing in the stock asset class:

  • Stocks are ownership shares of individual companies.
  • They tend to increase in value more than bonds.
  • Most stock values do not go to zero.
  • A diversified stock portfolio from various industries, sizes and geographical locations is likely to outperform bonds and cash.
  • Stocks are volatile, their returns go up and down, but the general stock market trend has been upward.

With education and experience, I became more interested in investing in the stock market and decided to try my hand at individual stock picking. First, I read everything I could get my hands on, including Peter Lynch, Security Analysis by Ben Graham, Investing textbooks and more. I joined the Better Investing.com, and started an investment club. I created a portfolio of stocks, selected on the fundamentals of value investing principles. 

As I became a more accomplished stock picker, I got a position as a portfolio manager of a real estate holding company. I continued to analyze and pick stocks, until I took an investment management class during my MBA at Penn State.

That’s where I learned that most investors fail to outperform the major stock indexes. At that point, after years of tireless annual report, quarterly report, and SEC document study, I decided to become an index fund investor.

I’m still in the process of selling the individual stocks I accumulated over the years (I have 2 left) and have completely transitioned into an investment portfolio of low cost index and exchange traded funds. Freed of the hours of individual stock research I’m content to match the markets. Any additional alpha I got from stock picking was offset by hours and hours of research. While fun at first, over the years, this stock market research became tiresome. 

And that is why I used to invest in stocks, and now I don’t. Oh, and by the way, take a look at historical market  returns.

historical stock and bond returns

Market matching returns look quite impressive! I wouldn’t complain about an average 11.17% stock or 8.45% bond market return since 1980.

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Happy Investing!

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