Roughly 145 million adult Americans (58%) own stocks averaging around $40,000. This ownership increases to 89% in households earning $100,000 or more. Conversely, the investment rate drops to 25% in families earning less than $40,000. But what about investing satisfaction?
Up to 60% of young people are dissatisfied with how they invested in stocks. In contrast, older generations around sixty years old are mostly content with their investment decisions, with only about 15% expressing dissatisfaction. These trends show a direct correlation between disposable income and investment. Additionally, satisfaction with investing in stocks tends to increase with age. This is because stock markets appreciate in the long term, and if you speculate short term on buying shares of a particular company – for example, if you like Microsoft now because they just released a new game on the Xbox console, or if you believe Facebook's Metaverse is a clear future, it may not necessarily mean it's a suitable investment decision.
Diversification: Key to long-term investment strategy
The foundation of a successful long-term strategy is investing in a broader basket of stocks because an individually selected stock may not achieve the potential appreciation possible with a broader market scope. In America, there is also a deeply ingrained culture of saving and investing in stocks. Therefore, many companies, such as Johnson & Johnson, offer various employee reward programs through either stock ownership or funds composed of American stock indexes. Through such a long-term approach, American companies ensure that American retirees will continuously appreciate their assets. In Slovakia in the 1990s, Vladimir Mečiar spoke of Slovakia as the future Switzerland and its pensions. In this context, it is interesting to consider why Switzerland is such a wealthy country and why its retirees are so well provided for. A large portion of its residents doesn't keep Swiss Francs in their accounts but instead invests in stocks long term. In summary, if you want a Swiss pension, it's not about what any politician tells you. It is extremely important to hold something that has value and can generate money long term.
Investing in successful companies through stock purchases
Unless you're starting or managing your own business, another solution is to invest in someone else's successful, functioning company. For comparison, if you regularly invested $100 per month with compound interest and initially invested $1000, your appreciation would be around $60,000. Conversely, by investing and reinvesting the money you earn on stocks at a 7% average return (the average return of the S&P 500 is around 10%), you could reach a level of up to $280,000. According to a pessimistic model with an interest rate of 5 - 6%, with a long-term investment horizon, you will likely find that your financial resources have provided you with good security and not the other way around, that your cash in the account has just depreciated.
Comparing stocks returns vs. bonds
When considering how to save and grow money for the future, you should focus on assets that appreciate long term. It's crucial for them to provide regular returns – preferably even paid dividends. When selecting investment assets, it's important to monitor real values, services, and real assets of companies, as well as their performance. In the case of bonds, you are lending money to someone who will either appreciate or spend these funds through their business and in the case of government bonds you are supporting a particular government. For example, current Egyptian bonds offer up to an 11% return, but that doesn't mean Egyptians will pay it back because their currency has significantly devalued recently. American bonds, offering around 3.5% interest, are a very conservative instrument. On the other hand, stock indexes also offer dividends and are governed by certain development trends that make them a predictable investment.
And how do Slovaks invest sompared to Americans?
It's probably no surprise that Slovak investment habits are vastly different compared to ordinary American citizens. Read about it in the next part of our educational series.
This contribution was created as part of professional support for the prestigious non-profit organization JA Slovakia within the Ozios Investment Literacy program.
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Source: https://www.statista.com/statistics/270034
Disclaimer! This marketing material is not and should not be construed as investment advice. Past performance data is not a guarantee of future returns. Investing in foreign currency can affect returns due to fluctuations. All securities trading can lead to both profits and losses.
