©iStockphoto.com/Courtney Keating Image by: ©iStockphoto.com/Courtney Keating
While it's likely we'll still experience some ups and downs over the next year, if not longer, over time the market should rise. If anything, now's the perfect time to get into equities. There are plenty of deals to be had and this depressed market only has one place to go: up.
Stop watching the daily fluctuations and don't worry: It's likely you will make money in the market. Here's why.
1. It's all about the long termâ€¨
Historically, the stock market has always climbed back up after a recession. In 2001, after the tech bubble burst, the Dow Jones Industrial Average fell from about 11,722 points to 7,286 a couple of years later. It then made it up to 14,164 before the recession. As of spring 2012, the DJIA is around 12,883 -- well off the 2009 low of 6,500.
Take a look at this chart -- it shows just how much the DJIA has climbed since 1900 -- and you'll see that if you can wait out the market volatility, you'll do just fine.
2. Many companies are in better shape
â€¨In 2008, many companies were carrying way too much debt. Others were spending exorbitant amounts to run their business. It's a different story today. Many companies have trimmed the fat, paid off their lines of credit and restructured debt and are more conscious of where each dollar is going.
Not only are companies still profitable, but they're more financial sound than ever before. Overall, the chance of a bankruptcy has decreased dramatically since the recession.
3. Dividends drive returnsâ€¨
During the recession a lot of companies cut their dividends to save cash. Now, those payments are starting to come back. Dividends also attract investors, so many companies have started paying shareholders as way to prove that the business is safe. (In many cases, when a company is making more money than it needs, it pays the excess out to investors.)
Even if the stock market doesn't rise, people will make money by owning dividend-paying stocks. A lot of companies also increase their dividend every year, which means if you own the right companies or funds, your portfolio could see returns rise year after year regardless of how the market does.
Page 1 of 2 -- Discover two more reasons why you should stay in the stock market on page 2
4. The economy is improvingâ€¨
There's no question that the economy is still sick, but it's not about to perish like many people thought it would in 2008 and 2009.
Jobs are starting to come back in the U.S.; many experts think the housing crisis has bottomed; and while there are still major problems in Europe, many analysts are encouraged by the moves the European Central Bank has made to stave off a crisis. The economy should only get better from here, and markets will improve when people feel more confident that the worst is over.
5. People are still investing in bondsâ€¨
Because a lot of people are still worried about the markets, they're putting their money in bonds. A whopping $105 billion went into fixed-income in the first quarter of 2012 compared to $15.6 billion in the first quarter of 2011. This means that when people do feel better about the markets, a lot of this money will flow back into equities. When that happens -- and it is more a matter of when than if -- stock markets will climb.
Investors should be aware that it's still going to be a tough slog over the next little while. We've already seen the markets fall a bit in the second quarter of 2012, but all signs point to better returns over the long term. So get in now while stocks are cheap and watch your portfolio grow.
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