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The Power of Equity Investing - Part 1

The Power of Equity Investing - Part 1

| May 09, 2024

Now that you have the last two months of blogs under your belt and a solid understanding of the principles and practices of sound investing; it’s time to put those practices into action. That is why this month we discussing the power of equity investing. 

So, what is equity investing at its core. Investing by owning a share of a company, known as equity investing, stands out as a robust strategy for retirement planning. Unlike mere saving, which often involves stashing money away in low-risk accounts, equity investing involves purchasing ownership in businesses, offering the potential for significant long-term growth.

Equity investing revolves around purchasing stocks or shares of a company, entitling the investor to a portion of the company's profits and assets. This ownership can be acquired through various avenues, including individual stock purchases, mutual funds, exchange-traded funds (ETFs), and retirement accounts like 401(k)s and IRAs.

When it comes to types of equity investments, the options are diverse. Individual stocks provide direct ownership in specific companies, offering the potential for substantial gains but also carrying higher risk. Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, providing a more balanced approach. ETFs, similar to mutual funds, trade on stock exchanges and offer investors exposure to a basket of stocks or other assets.

Historically, long-term investment in equities has rewarded retirement savers due to the power of compounding returns. Over time, the stock market has shown a tendency to rise, albeit with fluctuations in the short term. By staying invested for the long haul, investors have the opportunity to benefit from the market's upward trajectory, allowing their investments to grow significantly over decades. Not bad, right?

Moreover, equity investments tend to outpace inflation, ensuring that the purchasing power of retirement savings isn't eroded over time. And who isn’t hyper-focused on that right now? This inflation-beating characteristic makes equities particularly attractive for retirement planning, where preserving the value of savings is paramount.

However, it's crucial for retirement savers to understand the distinction between saving and investing. Saving involves setting aside money for future use, typically in low-risk, interest-bearing accounts. While saving is essential for short-term financial needs and emergencies, it often falls short in generating substantial wealth over the long term.

Investing, on the other hand, involves putting money into assets like stocks, bonds, and real estate with the expectation of generating returns. Equity investing, specifically, offers the potential for higher returns but comes with greater volatility and risk. By striking a balance between saving and investing, individuals can maximize their chances of meeting their retirement goals, ensuring both short-term security and long-term growth.

Join me next week when we delve deeper into the differences between saving and investing.

Until next time…

One last thought: We believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.