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The Keys to Investing
by WealthEffect Staff

(The Three Big "Ifs")


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Stocks offer the best potential return if you have a long-term timeframe
 
  Time can be your greatest ally if your stocks have predictable growth  
  Predictable long-term growth is rare but attainable if your stocks have competitive advantage  
 
1.

You should invest primarily in stocks — not because they're exciting or because a friend of yours doubled her stake in six months but because, over the decades, stocks do a lot better than bonds or cash. (We won't even talk about commodities or options here, since they are no more than speculations.)

Stocks are the longest-term investment you can buy. When you buy stock in a company, you buy a piece of its future. You now own a piece of all of that company's future profits until the end of time or the end of the business (hopefully, in that order).

 
 
2.

Logically, if you own a piece of a company's future, you want to have some confidence in that company's future. You want some confidence that the company's profits will continue to grow for many, many years to come. You want predictable growth.

If the company whose stock you own has predictable growth, then time is a great ally. The stock price might rise or fall each day, but the value of your stock will rise substantially over time. And if you have the confidence and the patience to hold your shares for at least a decade, if you choose to be an investor and not a speculator, you will put the odds very much in your favor.

 
 
3.

Predictable long-term growth might be the key, but it's not as easy to find as you might think. Successful companies attract competition. That hurts profitability and growth. The wants and needs of consumers change over time. Innovation makes certain products or industries obsolete.

To enjoy predictable growth over many decades, a company needs to have a competitive advantage that is sustainable. For such companies, the stock market is an attractive place.

If the logic of predictable growth seems obvious, you are already a long way toward becoming a successful investor.

Suggestion: Go to The Strategy