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Why Stocks Belong in your Portfolio Why do you invest? Because you have plans for the future: a new home, your own business, a college education, a financially secure retirement. And each of these goals has a cost. But as you accumulate wealth over the years, there's an unstoppable force working to erode the value of your assets-inflation.Little by little, inflation eats away at your purchasing power, and each year, your dollars buy less and less. You've seen the evidence: postage stamp, a gallon of gasoline, a box of cereal, a new car. Each costs far more today than just 10 years ago-that's inflation!
If inflation rises 5% per year, an item that costs $1,000 today will cost $1,630 in 10 years. Similarly, the cost of your dreams-your retirement home, your grandchild's education-can be expected to rise, too. And because Americans are living longer, they're enjoying more post-retirement years. That's why it's so important to keep your dollars growing faster than inflation. To stay ahead of inflation, you'll need investments that have potential to appreciate in value, such as common stocks. Stocks represent shares of ownership in a company. Unlike the owners of debt securities, such as bonds, the stockholders of a company have a chance to participate in the company's success. If companies grow and prosper, they may pay shareholders a quarterly dividend, and their shares can become more valuable. However, stocks have greater price volatility than fixed income alternatives: if the company falters, the price of its stock may reflect its woes. While past performance cannot predict future results, historically, the long-term rate of growth of common stocks has exceeded that of fixed-income investments and inflation. Over the past 40 years, in fact, a leading indicator of stock market performance, the Dow Jones Industrial Average, has increased 850%-much faster than the Consumer Price Index, which rose 450%. Although there are many high quality choices for today's investors, if your investment plan aims to keep you ahead of inflation, it should include an appropriate amount of common stocks in its investment mix. Preferred Securities Group, Inc. Member N.A.S.D., S.I.P.C. |
