Wes Moss: Investing is the way to grow wealth

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Many people wonder why they should bother investing in the stock market these days. As one woman told me, “We’ve decided we’re better off using our investment money to pay down the mortgage. That way, we at least know we’re getting a 4.5 percent return.”

Such frustration is understandable. We’ve suffered two major bear markets in the past 10 years. Housing prices have collapsed. The European Union is teetering on the edge of financial disaster. Greece has an interim government. Italy’s prime minister is stepping down. To make things worse, we all understand that the U.S. has the same underlying problems — massive debt and high debt-to-GDP ratios — as those struggling EU countries.

All of this makes investing a scary undertaking.  But the stock market is a powerful tool for building wealth; it just takes time and perseverance.  If you had invested $1 in small cap stocks in 1925, you would have $16,057 today.  A buck put into large caps that same year would have netted you $2,967. Inflation? It takes $12 today to buy what a dollar bought in 1925.  So historically the market has rewarded wise, consistent investors, even in the face of inflation. More than government bonds. More than gold. More than cash in the bank.

The roller coaster aspect of the market prompts too many investors to make bad decisions – selling at the bottom of a bear market, buying at the top of bull markets, and jumping on trends that proved to be bubbles.  Such emotional moves can kill long-term returns.  A recent study showed that while the S&P 500 returned 8.2 percent from 1990 to 2010, the average investor’s portfolio grew just 2.3 percent.

We can’t eliminate market volatility, but you set up an “emotion-proof” strategy that cuts out short-term fear- or greed-based follies.

We’ve faced far worse circumstances in America — the Great Depression, two world wars, the threat of communism, assassinations and 9/11 — and still thrived. And the pie will continue to grow bigger over time. Companies like Apple will innovate and change how we live, and businesses like Georgia Power and Proctor & Gamble will continue to make money by providing essential goods and services.

Remember these wise words from Vanguard founder John Bogle: “The stock market is a giant distraction from the business of investing.”  Look beyond the latest headline. Don’t let emotion throw you off track or keep you hiding in a bunker.  Understand that stocks that pay dividends are – and will continue to be — one of the best places to grow wealth over time.

If you are looking for ideas on creating that emotion-proof investment strategy, check out what I call The Bucket Approach.

– By Wes Moss, for Atlanta Bargain Hunter

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12 comments Add your comment

dd

November 14th, 2011
7:08 am

Good advice.

Don’t let emotion rule your life.

If you can’t take the sometimes daily fluctuations, you’re probably better with a 1/2 percent at the bank.

Not the greatest long term strategy, but maybe you’ll rest better.

I subscribe to dollar cost long term investing.

Donna P.

November 14th, 2011
7:37 am

Haven’t you heard, being wealthy is EVIL according to the Occupy Protesters, President Obama, and the Progressive Democrats.

MR164

November 14th, 2011
8:47 am

@Donna P – Its too early for that crap.

JO

November 14th, 2011
9:27 am

@Donna P.- It’s so sad that you make comments like you did. The Occupy movement, everything that it is (negatively), is not an assault on being rich, and President Obama is not against being rich either. He himself is moderately wealthy. There is a wealth and income gap that divides most of us, and it would seem that most of the people at the top, do everything to ensure that folks on the bottom do no have an equal or fair opportunity to the same freedom.

To help you have a different perspective, I will tell you this. I am a close to 30, married black male. I have never been to college. My family couldn’t afford to pay for it in cash, nor take on the debt. I am republican in my moral values (mostly) and democratic in many policies. I voted for GWB the first time!! I come from a hard working and honest family, who don’t live extravagantly. I am intelligent. I am responsible. Unfortunately, due to many circumstances beyond my control, I was not born into wealth, and some of the mitigating factors in my life have not allowed me to invest in stock. What I know about stock, I have had to learn for myself… How do you invest in stock, if you live paycheck to paycheck? I don’t lve paycheck to paycheck because of any bad habits, or living above my means. I am drug and cigarette free. I work multiple jobs. I own my home that costs less than having an apartment. I vote. I just can’t afford to buy stock right now.

JMM

November 14th, 2011
9:37 am

JO – keep working on it. You, like myself, and so many others are the majority in our country. Living decently, but working for it. Not priviledged, not wealthy, but that’s okay. We want better for ourselves and our families…that’s all.

I suggest you take a look at Wes’ Bucket Approach investment strategy – it’s easy to understand and easy to stick to. You will certainly have to create more income or more ways to invest to be able to get to put money into each of your buckets, and you alone will be the one who figures out how. I’m in the same boat, but trying to find ways to do it, and I will.

clem

November 14th, 2011
9:38 am

hang in there JO, the rich and powerful are getting moreso everyday…the rules favor the wealthy with few crumbs for poor….hardly anything for middle class.

run for congress, they can trade on inside information with impunity…did you see 60 minutes….

the OW may be somewhat misguided but underlying theme correct

Truth

November 14th, 2011
9:44 am

Did you factor in taxes to the numbers you used in your article?

Bottom Line

November 14th, 2011
10:17 am

1. When you buy, buy blue chip, dividend paying stocks, and hold forever.
2. Set half position dividends to reinvest, others to go to money market.
3.Once money market balance gets substantial enough to establish a new position, go back to number 1.

Wes Moss

November 14th, 2011
10:37 am

@Truth – the returns we calculated on a “total return” basis and did not factor in taxes

Donna P.

November 14th, 2011
10:56 am

Look people, President Obama and the Progressive Democrats consider anyone making over $250,000 a year wealthy. They go after the wealthy every day. To Jo; my husband grew up with a single mom and living on welfare in a Section 8 housing unit in Massachusetts. He went to college on a work-study program. He is now 37 years old and a Program Director with a major health insurance company. In other countries, he would have never had the opportunity to use his hard work to achieve this. We should be encouraging everyone to achieve (even wealth) not make them feel bad for their success.

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