What Can You Learn From Historic Stock Prices?

With the popularity of the stock market today, many people are curious about historic stock prices and what they signal for future investments. Here’s a brief synopsis of the general trend of the market since its inception and how you can use this information for smarter investments in the future.

The stock market has historically averaged a 12% overall increase each year. This performance is obviously strong when compared to the returns from bank savings accounts or long-term savings bonds.

Based on these historic stock prices, one might assume that investing in a mutual fund is a wise long-term strategy. But in reality, this might not always be the case.

There is a lot of misinformation about investing today. Since the stock market has historically averaged a 12% return, many view mutual funds as safe investments. This belief arises because mutual funds diversify their holdings, often reflecting the broader market trends.

However, this approach carries risks. Some investors have faced significant losses by keeping their money in mutual funds for extended periods. Here’s why:

Imagine you’ve been investing in a mutual fund for many years, enjoying consistent 12% returns. Suddenly, a stock market crash occurs, and a significant portion of your gains could be wiped out.

A lesser-known fact is that people must start withdrawing from their 401K accounts once they reach age 70. With the large wave of baby boomers approaching retirement, many will begin withdrawing substantial amounts to fund their living expenses. This mass withdrawal could trigger a significant downturn in the stock market.

While this potential downturn might be a few years away, it is approaching quickly. If your money remains tied up in a mutual fund when such a crash hits, a lifetime of investment growth could be lost in an instant. This has happened to many investors who believed their funds were safe and could easily happen again.

The key takeaway? Don’t entrust your finances solely to others. Educate yourself, conduct your own research, and you’ll be better equipped to recognize investment opportunities that others might miss.

Although historic stock prices have generally shown positive returns, it doesn’t take much to see significant losses in a portfolio. Make sure you understand the risks and opportunities when you dive into the world of investing.