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Many investors have seen their portfolios rise phoenix-like from the ashes. But the biggest damage from the market meltdown may still be yet to come.

Clearly, the majority of investors significantly invested in the stock market during 2008 and early 2009 didn't enjoy the spectacle of their ravaged portfolios. Even with the big rebound we've seen over the past year, many investors still have yet to catch up to where they stood in 2007, before the markets began to plunge.

However, the impact of stocks' lost decade on investor confidence may prove far more powerful, potentially persuading future generations of investors never to invest in stocks at all. That could spell disaster for their financial prospects for decades to come.

Pulling the trigger
Even when you're not scared about the possibility of a market cataclysm, beginning to work toward a major financial goal like saving for retirement takes a fair amount of effort. Consider:

  • Before you can even start, you need to find a way to invest your money, whether through a discount brokerage account or a mutual fund company.
  • Once you have that set up, you have to decide on how to allocate your money across a range of thousands of different types of investments.
  • Then you need to come up with the cash to invest every month. Even the most diligent budget-using households may still find it difficult to come up with cash for regular investments -- especially when times are tight.

Moreover, starting is just the first step. You also have to keep constant tabs on your portfolio to make sure nothing goes wrong.

Why you need to start now
Given all those obstacles, it shouldn't surprise you that many people never bother to do anything more complicated than throw their extra money in a savings account somewhere. With such an uncertain payoff, building a comprehensive investing plan may well not seem like it's worth the effort.

In particular, the financial crisis has convinced many people that investing in the stock market is a losing proposition. With major stock indexes having produced zero returns over the past 10 years, that attitude is easy to understand. People want an incentive for making investments -- one that simply hasn't been there recently.

Even with these objections, though, the simple fact is that you can't afford not to invest. You need to start now before it's too late -- and stocks need to be part of your investing plan.

Why you need stocks
The sad fact is that conservative investments can't produce high enough returns for most investors to meet their goals. Investments like bank CDs and Treasuries may be backed by the U.S. government, but their tiny returns won't move you quickly toward your goals. Add the impact of inflation and taxes, and you'll be lucky to end up with any returns at all.

In contrast, stocks in nearly all sectors of the economy have provided strong long-term returns, even considering the stagnant period over the past decade:


20-Year Average Annualized Return

Dell (Nasdaq: DELL  )


United Technologies (NYSE: UTX  )


Johnson & Johnson (NYSE: JNJ  )


American Express (NYSE: AXP  )


Target (NYSE: TGT  )


Source: Yahoo! Finance.

Of course, many stocks have fallen short of these returns. Struggling companies like Eastman Kodak (NYSE: EK  ) , for instance, haven't been able to avoid losses. Hard-hit financials like Bank of America (NYSE: BAC  ) have seen more modest returns, although their recovery since last year's market lows has been nothing short of phenomenal.

Historically, stocks have produced returns of between 8% and 10% annually. But even if you rein in your expectations to the 6%-8% range, you'll still see your money grow much more quickly with stocks than with other investments -- and unless you're able to save huge amounts of money, you'll need every bit of return you can get.

Get started right away
If you haven't already done so, contributing to an IRA is the best way to get started with your investing. IRAs give you a great deal of flexibility to pick whatever investments are right for you, along with unique tax breaks you won't find anywhere else. But with an April 15 deadline for making contributions for the 2009 tax year, you can't afford to wait to get started.

The financial crisis may drive some investors out of the stock market entirely. But you don't have to sacrifice your financial dreams. Get started with an IRA today and get yourself on the path toward a brighter future.

For more information on IRAs, check out the resources at the Motley Fool's IRA Center.

Attention, Fools! Looking for a trustworthy financial planner? The Garrett Planning Network is offering a limited-time 10% discount for new Motley Fool clients. Just click this link, search your state, and look for the Motley Fool icon to identify participating advisors.

Fool contributor Dan Caplinger always gets things in under the buzzer. He doesn't own shares of the companies mentioned in this article. American Express is a Motley Fool Inside Value pick. Motley Fool Options has recommended buying calls on Johnson & Johnson, which is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is our everlasting gift to you.

Read/Post Comments (7) | Recommend This Article (41)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 05, 2010, at 8:06 PM, plange01 wrote:

    hopefully these investors have gotten past the old buy and hold forever and just putting your money in mutual funds that fall apart the second there is a problem..

  • Report this Comment On April 05, 2010, at 10:06 PM, TMFGalagan wrote:

    Hi Charlie -

    Thanks for your comments. Having followed your posts within the Fool community, I'm somewhat familiar with your corporate bond investing strategies. I believe that notwithstanding your results, it's easier for the typical investor to outperform Treasury bonds and other conservative investments using stocks than corporate bonds.

    For those who are interested in pursuing corporate bonds as an alternative or supplement to stock investing, though, I'd argue that bond investments benefit even more from being in an IRA. Although dividends and capital gains from stocks outside an IRA often qualify for lower tax rates, interest payments on bonds typically get taxed at your higher ordinary income rate. They can benefit even more from the tax protection that IRAs offer.


    dan (TMF Galagan)

  • Report this Comment On April 09, 2010, at 1:37 PM, canticle wrote:

    It seems that few people are satisfied with "good-enough" and wish much greater returns than "normal", ergo this seeming disregard for bonds. It is when "good-enough" is not good enough that risks are less important. Each investor needs find their own level of risk/return, but Charlie's point is a necessary one when reflecting on what it is we do with our monies.

  • Report this Comment On April 09, 2010, at 2:19 PM, FoolishTide wrote:

    1. I'm glad I read Charlie's & Dan's exchange

    2. Makes me feel even more dumb than I had imagined

    3. There need to be better financial education!

  • Report this Comment On April 09, 2010, at 4:08 PM, waropayk wrote:


    Thanks for the great info. I'll be educating myself on corporate (or junk) bond investing now. See you out there


    Your future competition! :-)

  • Report this Comment On April 09, 2010, at 6:16 PM, jjayhowe wrote:


    This may fly in the face of your desire to limit the "competition." I'm interested in your feedback as to where to find the best commission and fee structure for buying corporate bonds. I'm considering investing some funds and noticed that my broker claims a rate of $1.00 per bond with no additional fees or charges. I wonder though if I'll be getting the actual market price and only paying this $1.00 commission??? I am a long time stock investor and E-Trade customer.

  • Report this Comment On April 12, 2010, at 9:27 PM, TMFGalagan wrote:

    @salsipuedes - I certainly respect your decision to accept, in your words, two-thirds the return for one-third of the grief. That's a decision that I presume you can afford to make. And certainly, it put you in a great position to take advantage of extraordinary opportunities in the bond market during 2009.

    For some, though, higher returns are worth what you think of as grief. The greater risk of a stock going to zero is outweighed by the greater chance of seeing outstanding returns. If another investor can't meet your financial goals on two-thirds the return, then stocks could be the answer that person is looking for - even if you wouldn't touch them with a 10-foot pole.

    good luck,

    dan (TMF Galagan)

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