Posts with keyword long-term→
What is a “security”?
(This post is a part of the series on Basics of Finance and Investing.)
Merriam-Webster Online Dictionary
defines the word security as “the state of being secure”. Then further down, “an instrument of investment in the form of a document (as a stock certificate or bond) providing evidence of its ownership”. These two definitions are not unrelated. A security is an investment instrument that is supposed to secure your financial future.
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How fast should my money grow?
Well, there is the handy “Rule of 72″, which says the number of years it takes for the money to double at x% yearly (compounded) rate is roughly 72 divided by x. For example, if you have $10,000 in a money market fund earning a sedate 5%, it will grow to $20,000 in about 14 (=72/5) years. By contrast, if the same $10,000 is invested fully in a stock fund that appreciates at a healthy 10% (not a fairytale), doubling your kitty should take only 7 years.
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A layman’s take on market fluctuations
If we look at the data for a broad stock market index, such as the Dow Jones Industrial Average or S&P 500 Index, three things jump out of the page. The first one is good news – there is a strong upward trend in market movement over the entire recorded history. This means that holding onto a diversified portfolio should fetch significant gain over long term – a popular retirement strategy for many who still have several years left before hanging up their boots.
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