Instead, buying and holding a diversified set of stocks and bonds is how most working professionals build wealth over time. It might seem boring, but it works.
It’s disheartening to watch our investment portfolio shrink. And, it seems like that’s all it’s been doing this year. But remember, true wealth is built over time, not overnight.
Think years. Sometimes, decades. While it’s true that some stocks will go down, history has clearly and consistently shown that most stocks will, over the long term, go up.
How do we know which stocks to invest in? What ones will go up? Which will go down? The short answer is simple: nobody really knows. This unknown is why diversification is such an important concept in investing.
Think of it this way: If you invest in only two or three stocks, then your entire investment nest egg is tied up in only two or three stocks. In order to make money, you need at least one or two of those stocks to go up. Otherwise, you risk losing a great deal of money.