3 reasons to be with shares

9:30 AM Reasons, Shares No Comments

Business Week | By Dana Anspach, US News & world report

It's not for everyone: most of us can not resist the urge to sell during a downturn. But if you understand the risks and not as crazy as it sounds realistic expectations, a 100% equity portfolio.

My individual retirement account money is 100 percent invested in stock index funds. Let me tell you why.

It is not because I believe that the stock market will take off. It is not because I have some guru read economic tip of the year. And it is not because I do not, that the risk understand the ownership of shares (shares is just another word for shares).

It is precisely because I understand the risk, I have realistic expectations and my choice is perfectly suited for my goals. Let me explain, the three reasons for my choice:

I think the most abused word in the field of financial risk. Everyone thinks they know what it means, but really nobody. How about a definition of risk, which everyone can understand? Ask two simple:

Can I lose money? If the answer is no, a safe Investition. Kann I lose my money? If the answer is Yes, would find out what it may take to ensure.
If you have a diversified portfolio of equity index fund, to lose your money, thousands of the largest would have company in the world will fail at once. Could this happen? Yes, but if it works, I don't think I'll care much, is how much money in my IRA. It is more likely that I find out will be to protect my property and my grow your own food.

My investment value could be half of their value in a few months? Absolute. But what do you care? I need the money in a few months. I need it in 20 years.

The volatility is going through in the next 20 years the fluctuations that is the value of my account. The risk of volatility for the average person is emotionally, or understand not the investments that they have, and leave after a big bear market. I know I'm to do that so that volatility is irrelevant for me.

The danger is that the stocks will do well not just in the next 20 years, and I get to retire and realize that I would have a better result by sticking with investment security. That's a risk I'm willing to accept.

I don't expect that be my IRA by 30 percent this year. I go not expected by 10 percent this year. Don't really care what it is this year. I expect that if it is I alone more than 20 years to deliver it a decent rate of return.

If I get a bad 20 years, I think I will make more than 0 (zero). If I get over 20 years, I would expect that it 12 percent or more per year on average. An average annual return of somewhere between 0 and 12 percent is what I expect.

Why it so far-reaching? Because I have no control over what market conditions provide the next 20 years. Everything I have control is how I invest. And I know if I my kept money in safe decisions, it would have a chance 12% per year earn, although it will earn more than 0 (zero).

I also expect that my accounts drops to every eight to 12 months, about 10 to 15 percent to the value. Why should I do that? That's about how often market corrections occur. In addition, I expect that some time might be in the next 20 years I mean to see account values from 30 to 50 percent. As bearish market corrections are not uncommon.

Because my expectations in line with the reality, I am completely comfortable to invest in shares. It is also the choice which is most of the objectives of my retirement money at this point in my life.

How do I know that my retirement has money 20 years? Well, I think I'll probably work until the age of 70 years. Not because I have, but because I just get bored and enjoy work. I am currently in my 40s.

Read more: 5 lessons from this bull market

Retirement money is a protected resource, if it so, the creditor is. This means that even if I screw up royally and filing bankruptcy at the end (I certainly don't expect that, but life can throw some nasty curve balls), I would not still redeem my retirement money to try to save the situation.

I also know I don't panic and bail from the market, when it comes, because I know it will go up from time to time.

All this knowledge together, and I know that my money has retired at least 20 years. My goal is possible in this period the highest return. Deciding to invest everything in stock index funds, is the option most likely to reach my goal. I know that higher yields are not one hundred percent sure. I also know that when I retire I on my portfolio move closer, changes and gradually add in more secure decisions.

I have other non-retirement money. And you know what? It is 100 percent invested in safe investments. It earned almost nothing. Why should I just leave it there? Since my livelihood in the financial markets is bound, and when the bear market, I expect that it probably happens is my income is down. During this period reserves will need to redeem I, and I want not on the stock exchange tied.

Even if your retirement money, and you have 20 or more years, a 100% equity portfolio, not for most people. Too many people confuse volatility for a permanent loss and are prone to high purchase and sale of low.

The final allocation of your investments regardless of you be a better investor by questions about risk, setting realistic expectations and have clear objectives.