10 Reasons Why You Should Buy Stocks

Investing legend John Bogle thinks this is the worst market he's ever seen for investors in over 60 years. He believes our economy is weak, and our financial system has been severely damaged.

The market commentator Barry Ritholtz recently noted in The Washington Post that retail investors have been driven away from equities as a result of the market disasters of the last decade. After considering the two market collapses of 2000 and 2008 in addition to all of the scandals and self-dealing on Wall Street, who could blame them?

In light of the above, we completely understand why ordinary investors might distrust the market (of course, whether they do is up for debate ), and are wary of investing in stocks. Over the past 10 years through 2011, the S&P 500 has delivered a measly annualized return of 0.38%. And that result assumes investors held on tight during the crash of 2008 and early 2009. Through it all, the "banksters" still rewarded themselves very handsomely.

So yeah, the market has performed poorly, and the deck appears stacked against the ordinary investor. Despite that, we still believe that stocks are the best way for individuals to build wealth over the long term. Here are 10 reasons why retail investors should consider stocks right now:

10. Corporate balance sheets and operations are very strong at the moment. By the end of 2011, corporations held $2.2 trillion in cash on their balance sheets. And earlier this year, corporate profit margins hit an all-time high.

9. There's never a perfect time to invest in stocks, so today is as good a time as any. Some market environments might look too expensive. And some may look too scary. Frankly, it will never seem like the perfect time to jump in. The key, however, is to forget timing, and focus on finding high-quality businesses. For example, the year 2000 wasn't the best time to invest in the market as a whole. Since the start of that year, the S&P 500 is actually down 3.5%, as 2000 marked a high point for stocks.

But even though the market performed poorly overall, Monster Beverage (Nasdaq: MNST  ) , the energy drink maker, delivered monster returns -- it's up 22,317% since the beginning of 2000. Finding a big, big winner is, of course, never easy. But investors should always be on the lookout for multibaggers, regardless of market conditions.

8. Returns over the past decade have been extremely low by historical standards. Over the next 10 years, we're confident that market returns will move back toward the mean. Over the past 100 years, stocks have delivered average annual real returns of 6.6%, according to Jeremy Siegel. Even though we're not market timers, we still suspect real returns over the next decade will be closer to the historical average than the meager 0.38% we've seen over the past decade.

7. The incredible rise of China, India, and other emerging markets suggests increasing growth over the long term for the global economy. And that could be very good news for investors.

Jim O'Neill, who coined the term BRICs, has even identified the "Next Eleven" countries that will begin to grow almost as rapidly as the BRICs did a decade ago. In the coming years and beyond, global economic growth is likely to be stronger than ever, even though it may not appear that way at the moment.

6. Stocks are your best option right now. John Bogle made that precise point recently in an interview with The New York Times. He noted that low bond yields now "predict low returns later." Ultimately, he believes that stocks are likely to "produce better returns than the alternatives."

5. The spirit of innovation is alive and well. For example, look at the incredible rise of 3-D printing. This is an amazing technology that was once considered a pipe dream. Today, 3D Systems (NYSE: DDD  ) and Stratasys (Nasdaq: SSYS  ) are pushing the technology to new heights. There's even talk about being able to print an entire airplane wing in the future.

4. Right now, there are some tremendous companies out there that are trading at very attractive multiples. InvenSense (Nasdaq: INVN  ) , which makes motion sensor chips for smartphones, tablets, and many of types of electronics, is one such company. Analysts expect revenue to grow 42% in FY2013 and earnings to increase 25%. Yet the stock trades at just under 20 times next year's earnings. That's a fantastic price for such a promising young company.

3. A lot of excellent companies offer outstanding yields at the moment. For example, the average yield for the Dow Jones Industrial Average (INDEX: ^DJI  ) is around 2.9%. That's roughly the same as the yield of 30-year Treasuries, and is higher than Treasuries with shorter maturities. For those investors interested in scooping up outstanding companies that pay relatively high yields, now is the perfect time.

2. Call us old-fashioned, but we really like the fact that equity investing rewards hard work. For those of us who believe in fundamental analysis, learning more about selected companies can result in big returns over time. Many of our favorite investors -- Warren Buffett, Peter Lynch, and David Einhorn, to name just a few -- have been notoriously hard workers, and have been richly rewarded for their diligence. Ultimately, we like to think that we'll get out of investing what we put into it.

1. Individual investors need equity returns over the long term in order to meet their retirement goals. Just recently, we learned from a retirement expert in The New York Times that 75% of Americans nearing retirement age had saved less than $30,000. That's a shocking number that isn't even close to being enough to fund a comfortable standard of living. Hopefully, it'll serve as a wake-up call for all of us. It's time to start investing.

There's nothing to fear. Really.
We find it somewhat amusing that some folks refer to a "demographic time bomb" when discussing how longer life spans might lead to a fiscal catastrophe. First of all, greater longevity is a wonderful thing for all of us. Let's never forget that for a moment. Secondly, longer life spans provide longer time horizons for growing one's wealth.

The real danger facing us is that people need to begin investing at an earlier age, and they need to devote a larger percentage of their income to their investments. By doing those two simple things, we can very easily defuse the time bomb. And with hard work and a little luck, we should be able to achieve many of our financial hopes and dreams.

If you agree with us that investing in stocks is the best way to go, check out our latest free report: "The 3 Dow Stocks Dividend Investors Need." We believe that these three stocks will provide you with steady income, while also delivering ample capital appreciation over the long term. Grab your free report today.

John Reeves does not own shares in any of the companies mentioned. David Meier does not own shares in any of the companies mentioned. You can follow them @TenBaggers on Twitter for more investing commentary.

The Motley Fool owns shares of InvenSense. Motley Fool newsletter services have recommended buying shares of Monster Beverage, Stratasys, and 3D Systems. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that
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Read/Post Comments (10) | Recommend This Article (66)

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  • Report this Comment On August 24, 2012, at 4:17 PM, MASTERHF wrote:

    I also believe that stock market has conditions to continue its uptrend.

    Interest rates are very low, the FED are preparing the QE3 and there are many cheap stocks.

    For example, Coca-Cola has been trading sideways at about 14 years (since 1998). The last 2 times this hapened the stock sky-rocket 1000% in the next 12/13 years (see https://sites.google.com/site/higheralphaideas/home/atall-ti... )...

  • Report this Comment On August 25, 2012, at 12:30 PM, rgperrin wrote:

    This is good source, but it isn't perfect. What is? I was within an hour of buying 200 shares of McDonald's at a price I remember as being somewhere in the mid-teens (maybe $17) until I read a scary assessment of McDonald's by Motley Fool (e.g., McDonald's was leaving entire countries, facing all kinds of problems, etc.). My fault, ultimately, of course, but if only I hadn't seen that article!

  • Report this Comment On August 25, 2012, at 1:17 PM, 48ozhalfgallons wrote:

    Yada yada yada......

  • Report this Comment On August 25, 2012, at 9:04 PM, colleran wrote:

    Reason 11: All the experts think this is a bad time to invest.

  • Report this Comment On August 25, 2012, at 10:06 PM, TMFBane wrote:

    @colleran, yes, you are absolutely right. I'm expecting a "death of equities" cover story at a major publication any day now:

    http://www.businessweek.com/stories/1979-08-13/the-death-of-...

  • Report this Comment On August 29, 2012, at 10:32 AM, Darwood11 wrote:

    Good article.

    I invest for the long term. That is, my primary purpose by investing be it stocks, bonds, commodities, etc. is to fund my retirement.

    The #1 fact in the article that people simply have not saved enough is scary. Scary because a failure to achieve a retirement goal means there may only be four options available; change one's life and save everything until retirement, make no changes but invest in very risky assets to attempt to catch up, avoid perceived risk and stash those savings in a mattress, make no changes and hope for the best.

    So my number 1 issue is having a realistic plan to save and grow enough to last to the end of my retirement horizon. That's possibly 30-40 years in my case and that of my spouse. My biggest concern is the long term effects of inflation, and I suspect that's a realistic concern.

    Let me also say that my perspective isn't about "investing for fun and profit." Sure, I like to see a stock double or triple in a short period of time, but chasing these winners can be a diversion from my real purpose. I also must say that I do not consider myself a failure because some of my investments haven't done that.

    The measure of success will be my ability to fund my retirement. Is it possible I won't make my objective? I may not, and failure may mean lifestyle changes such as jettisoning discretionary spending and trimming other expenses.

    Each of our retirement plans is a work in progress and there are no short cuts. A "10-bagger" will help, but it won't make my plan, nor will any short term failure break it.

    I have children in their 30s. Their investment horizon is probably 60 years! That is a long, long time to live, with an expectation and a retirement goal to achieve.

  • Report this Comment On August 29, 2012, at 12:09 PM, mikecart1 wrote:

    One 1 reason is needed. If you don't want to work forever and rely on your mediocre savings, a lousy pension at work, the chance of winning a lottery, the chance at acquiring a lot of money before you retire legally, and you want to give yourself at least a shot to make some mad money - slow but surely over time - to at least get in the game at all - then invest in stocks.

  • Report this Comment On August 31, 2012, at 5:29 PM, 619bell wrote:

    Historically, is there a bounce to the market after the conventions and before the elections?

  • Report this Comment On September 03, 2012, at 1:36 AM, wayoutie wrote:

    We do not know what any part of the future will have in stock for any of our investers, or how long you will have your job, or with the current game changers how long your company will even exist.

    We could still see bread a

    Gradual

  • Report this Comment On September 03, 2012, at 1:47 AM, wayoutie wrote:

    We do not know whatoiot any part of the future will have in stock for any of our investers, or how long you will have your job, or with the current game changers how long your company will even exist.

    We could still see bread $50.00 per loaf.

    Whether gradual or gang busters, where ever you see a good profit jump on it, as there are definately no guarantees.

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