I am a newbie on investing

I have been reading basic stuff, and the fact that the average grow of the stock market has been 10% per year.

If that is true, then why don't buy some solid stocks and hold them for 10 years and profit?

I feel like can't be that easy, if that would be everyone would do it, or not? what am I missing?

Basically everyone does it. Some catches though

What you're missing is that people hate drawdowns. They have $100K now, they want to hold onto that $100K, and not have $70K in three years. This keeps a good number of people out.

Many people have a fear of uncontrollable systems as well. They don't understand the stock market, but they see the giant crashes, people going bankrupt, etc.

Also, historically, money returned a decent rate of interest. You could get 5% with zero risk. More in a CD.

How could you get 5% with zero risk?

I don't get it. I am too noob lol

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You are focusing on the term stock market, when the general/umbrella term is financial markets, which include bonds, certificates of deposit, money market funds, etc. There isn't any risk-free stock (equity).

Risk-free rates of return are said to be provided by government-backed, short-term (relatively-speaking) bonds/bills/notes.


The text on this page has a perfect simple explanation:
http://www.bankrate.com/rates/intere.../treasury.aspx

It is that easy. Research passive investing and index funds. You can buy a fund that invests in all the major world stock markets, for example.

https://personal.vanguard.com/us/fun...tExt=INT#tab=2

The caveat is nothing is guaranteed, but you should get the return of the underlying markets at market risk.

Thanks! It give me back hope about the topic. Always got discourage to investing because my researches were always related to trading and everyone says it is damn hard to make money that way

I did research about certificates of deposit, now I get it, thanks !

It's like the old saying: if a sensible diet and exercise were all you needed to lose weight, everyone would be doing it. Less facetiously, most people just don't have the funds to invest. Like, a frightful percentage of Americans are buried deep in credit card debt. Most just really don't have basic financial literacy for a basic buy and hold indexing strategy. Then there's the multimillion (billion?) industry of managed funds that spends enormous amounts of advertising dollars convincing people to trust in their advisors.

For the rest, there's the Dunning–Kruger effect. It's enormously tempting for reasonably successful, untrained people to believe that they can beat the market by reading the news and playing hunches on Etrade. Kind of like why so many fish think they can crush online poker. There's also the human need for competitiveness. Just getting normal market returns just isn't satisfying.

Basically, it goes against a lot of human instincts to believe that the best strategy for most people is to just park your money in a mix of stocks and bonds and not touch it for ten years. It's very counter-intuitive.

Interest Rate Risk

Quote:

Interest rate risk is the risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market. The sensitivity depends on two things, the bond's time to maturity, and the coupon rate of the bond.[1]

Default Risk

Quote:

Default risk is the chance that companies or individuals will be unable to the required payments on their debt obligations. Lenders and investors are exposed to default risk in virtually all forms of credit extensions. To mitigate the impact of default risk, lenders often charge rates of return that correspond the debtor's level of default risk. A higher level of risk leads to a higher required return.

I think it helps if you study how an economy works, and do some math. And play around with this:
https://dqydj.com/sp-500-return-calculator/

You invest for a 15-20 year period, put money in stocks. Always the best. But when the market goes down, and the media is all gloom and doom how the system will collapse, that is when you should add, and that is where most people panic and sell and miss out on good returns. Emotions are def number one reason why people lose money.

Hence why I say, try to form an intelligent opinion about basic principles of macroeconomics, and play around with the numbers on that S&P 500 thing. If you don't do that, it will be very hard to not sell when some ugly crash inevitably happens.

This paper is a great place to start:

http://www.economicprinciples.org/wp...everagings.pdf

Explains macroeconomics better than almost any book out there.

There are markets with >10% monthly returns. Why don't people invest? Because they don't believe the 10% will continue.

Same for stock market. If people would believe expected return of 2018 stock market was 10%, they would invest. But most people don't believe , so they don't invest.

Same was true of 1989 people, they didn't believe returns of 1990 would be 10% on average, so most of them didn't invest. Were their beliefs wrong? Who knows, maybe in the past every year there was a 2% chance of a 80% crash happening (maybe there still is),and we were just lucky we didn't get one. There is a lot of uncertainty about the future, no1 knows what the expected returns of the future are and this is why people choose not to invest in stocks despite good returns in the past

Default risk is real, but irrelevant when discussing Treasuries. Why? If the USA ever defaults on Treasuries, there won't be a financial market to go to for an alternative. USA is not an individual or company. #DefaultOnlyinArmageddon

Interest rate risk is irrelevant, since the rates aren't static, and you could just as easily be a winner in the hindsight is 20/20 lookback as you could be the loser. You get the best risk-free rate that you can at that time. Don't change the rules.

I fixed the post I responded to and bolded changed risk free to default risk free.

Actually it is relevant.

Think people trade on their views of where interest rates are headed; the shape of the yield curve; spreads between corporate bonds and govt bonds; etc?

FYP

Not changing any rules just indicating the nature of the risk involved. If somehow you received $100,000 in 30 year treasuries that had 15 years to maturity, would you hold or sell?

It's that easy. Most people just don't save a lot of money for their retirement, for various reasons. Put in index funds and forget about it

Ok so I was ready to buy my first stock after reading some information and the first problem I find, the ridiculous high fees you have to pay for every trade.

Seems like the rake problem is not only a poker problem...

There is an app called robinhood where you can buy stocks without paying fees but it is not available in my country.

Anyone have any tought about this? Any way to make my investments safely and without paying those ridiculous fees?

I'm not too familiar with robinhood.

The amount of money spent in the trade is trivial in comparison to the amount that it grows by. The organization that you are using gets money through trades otherwise they have no money to keep their business afloat.


Here is a story problem:

There is Alice and Bob who both have $3000 each.

Alice uses her $3000 to purchase XYZ stock with a fee of $7. She now has $2993 of value. Now, fast forward a year and that stock increased by 10%. Alice now has 2,993 * 1.10 = $3,292.30

Bob decides he doesn't like the $7 fee and puts his money in the bank instead where it collects 0.0000000000001% interest.

Alice has $3,292.30
Bob has $3,000

Alice has $292.30 more than Bob which will compound yearly.

tl;dr
Be Alice not Bob.

JimBob also has $3,000.

JimBob opens a Vanguard account and purchases $3,000 of a Vanguard Target Date retirement fund for a transaction fee of $0.

JimBob can literally hold that fund until retirement and has a diversified portfolio with way less risk and most likely more return than Alice.

Be JimBob.

JimBob is rich, maybe JimBob can show Bob

Maroel, pick up the phone and call Vanguard and ask them about opening an IRA. They have fees but I think they waive them if you do a periodic investment schedule (every month or 2 weeks). Initial investment is 1 or 3k. Pick the vanguard 500 or total stock market index and just keep putting money into it for 20 years. Report back in 2037.

It really is that easy.

This is what I'm doing but I've been hearing more about an 'index bubble' because everyone's buying the same baskets of stocks. What do people here think?

That's nonsense. Talking heads need something to talk about.