Easier Money: Stock Investing Is for Wusses


Stock Investing Is for WussesWhen presented with stairs and an escalator, most of us take the escalator. Many of us dream of starting our own businesses, but we tend to put the thought out of our head, figuring it's safer and easier to just stick with our day job. Very frequently, we're wusses.

Thus, I read with interest an article by my Motley Fool colleague Morgan Housel, who declared that "Investing Isn't for Wusses." Sure, he's right that the stock market can be very volatile, which scares away many people. The S&P 500 (^GSPC) plunged a heart-stopping 37% in 2008 and dropped 10%, 13%, and 23% respectively in 2000, 2001, and 2002. Ouch.

People shouldn't avoid stocks because they're wusses, though. They often simply don't have enough information and perspective to see that stock investing is a money-making option that's hard to beat. In fact, it's perfect for wusses!

There Are Harder Ways to Make Money

Just about all of us need to accumulate money for our retirement. Thus, we need to figure out how to do so. Here are a bunch of possibilities to consider:

• Start your own company:
It's hard. You'll fight tough odds, will likely not make much money for a while, and stand a good chance of losing a lot of money, too.

• Work two jobs: Sure, it might not be that risky to teach school and also prepare tax returns for others, but it can really tire you out and eat up time you might prefer to spend with your loved ones.

• Gamble:
You don't even have to go to Las Vegas to do so. You can just buy lots of lottery tickets. It won't take long and won't tire you out, but you'll most likely be throwing your hard-earned dollars down the drain. Overall, in the long run, lottery players lose -- a lot.

• Invest in real estate: It sure looks easy. You buy a rental unit, sign up tenants, and then collect cash every month. But the market can turn against you. It might be hard to find tenants or to find good tenants who actually pay you on time. The value of your property can decline. You'll also have to pay for maintenance, repairs, insurance, property taxes, and more. It's hard.

Clearly, wusses who want to accumulate moola for retirement should probably avoid the paths above.

The Markets Don't Have to Be Scary

So consider investing in the stock market instead. Over the long haul it has outperformed bonds, bills, gold, and real estate. Sure, the stock market can be volatile, but that needn't scare you, as long as you're ready for it. Just know that the market will crash on occasion.

As long as you're investing for the long term, though, that's OK. If your retirement is, say, 15 or 20 years away, you should have time to ride out the downswing -- ideally while snapping up more shares at low prices. Many of the most successful investors have made millions or billions by just hanging on to shares of solid, growing companies through all their ups and downs.

It might seem that in order to make big bucks, you need to invest in obscure enterprises you've never heard of, but that's not the case. Many of the gains that the stock market offers come from boring old dividend-paying stocks. Over the past 10 years, dividends have added more than 2 percentage points to the average annual return of the S&P 500 -- in a meager decade. Indeed, from 1926 through 2006, more than 40% of the S&P 500's total return came not from the price appreciation of its component stocks, but to those companies' dividends.

Some stock investing can be risky and daring, but much of it can be rather mundane, like buying and holding big, predictable blue chips. You can add some bonds or bond funds to your mix over time, too, for more stability.

Investing Can Be Quite Easy

We wusses don't even have to break a sweat in order to invest. Here are some simple ways to get into the market:

• Take advantage of your employer's 401(k) plan or other retirement plan.
Be sure you invest that money effectively, though. Leaving it in a money market fund, for example, won't let it grow very quickly.

• Invest in simple, broad-market index funds that track the returns of the overall market:
An S&P 500 index fund or "total stock market" fund will work. You can often find these as options in 401(k) plans or you can invest in them on your own. Consider the Vanguard S&P 500 Index Fund (VFINX) or the similar exchange-traded fund SPDR S&P 500 (SPY). Any money you plunk in such a fund will automatically be invested in 500 of America's biggest companies.

• Another option that's been growing in popularity is the target-date fund:
With these, you choose the one that's right for you based on your expected retirement year, and then over time the fund shifts its assets from stocks to bonds as you approach retirement. These can be quite handy, but be sure to look closely, as they vary widely in fees and performance.

• Add some solid dividend payers to your portfolio:
No matter what the economy does, companies such as McDonald's (MCD), Procter & Gamble (PG), Coca-Cola (KO), and Johnson & Johnson (JNJ) are likely to keep making sales. You can grab a big bunch of dividend payers easily via a dividend-focused ETF such as the Vanguard Dividend Appreciation ETF (VIG) or the SPDR S&P Dividend ETF (SDY).

See? Investing in the stock market can be both rewarding and relatively simple. It's perfect for wusses.

Longtime Motley Fool contributor Selena Maranjian owns shares of Vanguard 500 Index Investor, McDonald's, Procter & Gamble, Johnson & Johnson, and Coca-Cola, but she holds no other position in any company mentioned. The Motley Fool owns shares of Coca-Cola and Johnson & Johnson. The Fool has sold short shares of SPDR S&P 500. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Procter & Gamble, Johnson & Johnson, and McDonald's, as well as creating a diagonal call position in Johnson & Johnson.

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Giuliani says the protestors should occupy a job. LOL. I love Giuliani. He should be president.

November 07 2011 at 8:16 PM Report abuse -2 rate up rate down Reply
John and Carrie

Stock market for wusses??
VFNIX closed at $126.26 today
SPY " " $116.32
MCD " " $94.62 want fries with that?
Wusses with a lot more coin than I.

November 07 2011 at 6:44 PM Report abuse +1 rate up rate down Reply
1 reply to John and Carrie's comment

$100 worth of a $5/share stock is worth just as much as $100 worth of a $100/share stock. And as long as you only look at the share price, you will never buy quality stocks, fund or ETF's. Don't worry about the share PRICE. The object is to collect SHARES. $100 will buy just under 1 share of McDonald's today. Appreciation and dividends will slowly purchase more fractions of a share. Keep buying, keep letting compounding do it's magic. And a lot of online brokers will let you buy fractions of share and not require you to buy whole shares, so investing something like $50 a month is very do-able. And large companies like McDonald's, Johnson and Johnson, P&G, etc allow you to buy directly from them and again, not require you to buy whole shares. Remember, DON'T focus on just the share price. $100 worth of a $5/share stock is worth just as much as $100 worth of a $100/share stock. As long as the stock/fund/ETF isn't overpriced, ignore it and start collecting shares!

November 07 2011 at 10:59 PM Report abuse +1 rate up rate down Reply

I was a stock broker for several years and I will admit openly that stock brokers are just salesmen. They have not a clue about what is going to happen next. Take them off the pedestal you might have them on. The reality is the fund managers will all tell you what they have is going up. You must do your own homework, take any advice with caution knowing you are being sold, brokers like to think they have a clue, but the honest ones will admit NOBODY knows. This explains why when the bubbles broke, most financial geniuses didn't see it coming or were quick enough to react to it, much less call their clients with any advice at all. Then comes the old advice to hang in there, you haven't lost anything until you sell, or nows the time to double down(if all your money isn't already invested in the market). I personally use a discount brokerage, $7 a trade, do my own research, don't listen to the money guys on TV, they are wrong often, out of the market when they should be in, etc. Most investors are also taking smaller profits quicker so the volatility is different than the years past. It is still a great market, but beware, and don't let the dishonest take advantage of you. People will do almost anything for the greed of money. But don't miss the opportunities for fear, just be aware of how things work in the world of money.

November 07 2011 at 6:17 PM Report abuse rate up rate down Reply

Let's consider a number of trends that might very well disturb the conventional wisdom that investing in stock market is always a good bet, long term: (1) unlike the latter half of the twentieth century when the stock market grew the most, real wages are declining, the middle class is shrinking, and most likely there will be far fewer people stuffing their "extra" wages into 401(k)s.That means, growth in the stock market, long-term, is anything but a sure bet. (2) The Baby Boomers are retiring and beginning to draw down their portfolios. This huge demographic has benefited the most from the expansion of the Stock Market and is probably the wealthiest middle class in world history. Who is going to replace the dollars these Boomers pull out to pay for their RVs, dream homes, and end-of-life care? (3) Energy prices, especially gasoline, are going to climb painfully over the next few years as global demand outstrips declining global production. Higher energy prices mean recession and low to no growth economically.

November 07 2011 at 6:05 PM Report abuse rate up rate down Reply

Sound advice...Just like the advise they gave me in 08 about a month before the market crashed. I listened to them when they advised against moving my money out of the market because I'd "miss the recovery". I stopped listening about two weeks later when I lost about 60% of my retirement funds . I agree you shouldn't buy lottery tickets and hope to turn a profit but I would caution anyone about listening to sound financial advise from anyone claiming to be a financial advisor.

November 07 2011 at 1:16 PM Report abuse rate up rate down Reply

Money in stocks -the RIGHT stocks- is better than in a bank account.
Don't buy on "hot" rumors. Buy what you know and like. Buy companies that have a "moat" - brand loyalty, unique products, tied in return customers. Buy companies with a low PE ratio (price-earnings ratio can be thought of as the number of years you need to hold the stock to make your money back). Buy stocks with dividends and DRIP (dividend re-investment). I made my 2nd house downpayment from stocks I bought 20 years ago - they had split and grown quite well. I bought my business property partially with a utility stock with a DRIP - it doubles every 10 years while I do nothing, or do other things.
Money in a mattress doesn't make more money. 9 out of 10 new small business fail within the first few years. The banks pay nothing in interest (and most only pay slightly better in dividends). As a landlord you are typically only making 1% profit on a house so long as you have good tenants, and one eviction will wipe out a year's profit. Real estate bubble is still there with a load of foreclosures waiting.
Do use a low cost broker. Do follow the basics. Don't listen to financial advisors - unless they are worth millions and only do it for fun - or they only make money when you do. Most money managers do as well as chance, or even slightly worse vs Index Funds according to the research.

November 07 2011 at 12:47 PM Report abuse +1 rate up rate down Reply

I can think of better uses for a few thousand of MY dollars than to loan them, interest and fee free, to stock brokers. And even if you are "your own broker" you are giving YOUR hard earned bucks to some guy you don't know who sits around in a suit and tie and passes it on to somebody else - and it keeps on going down the line, and every one of those people get a percentage of what YOUR money earns.

Take that money, go out and have a good time. They sure as he!! aren't going to buy you any steak dinners with your own money!

November 07 2011 at 11:35 AM Report abuse +1 rate up rate down Reply

Sssshhhh, or you will be occupied by pelosi's version of astroturf....

November 07 2011 at 10:26 AM Report abuse rate up rate down Reply