The Stock Market and Reality

 

Correlation of GDP and corporate growth

 

Businesses in the United States have been in long-term growth and a vibrant economy since 1929; for instance, the United States national gross domestic product or GDP has grown at the annual rate of 6.2% the annual pre-tax profits of the nation’s corporations have grown at a rate of 6.3%.

 

The correlation between the growth of GDP and the growth of corporate profits is 0.98. By looking at this simple data, we can conclude that this prevailing trend will continue in the years ahead.

 

 

Being knowledgeable of the past but don’t let it dictate the future

 

John Maynard Keynes stated, “it is dangerous to apply to the future inductive arguments based on past experience unless one can distinguish the broad reasons why the past experience was what it was”.

 

How to choose market stocks?

 

As part of understanding that when selecting stocks on the stock market, the price of stocks does not represent reality.

 

Stocks can be overpriced due to investors and stockbrokers artificially inflating the price and decreasing the stock value.

 

Also, when selecting an investment in the stock market, it is essential to research the company and determine if it is performing successfully and if there is a severe structural and organizational problem.

 

Most Fortune 500 companies don’t survive the past 30 years.

 

What are equity funds, and what do they do?

 

Equity Funds Equity Funds are a kind of Mutual Funds that invest in the stock markets. The stocks are selected by a team of professionals who try to deliver maximum returns from your investments while keeping risk in control. Equity Funds give you a diversified portfolio.

Only 2 out 355 equity funds have delivered truly superior performance in the United States 281 equity funds that existed in 1970 are now gone, mostly the poor performers.

Another 29 remain despite having significant underperformance in the S&P 500 by more than one percentage point per year. Together, the 310 funds, 87 percent of the funds among those original 355 having one way or another, failed to distinguish themselves.

 

Another 35 funds provided returns within one percentage point. Plus or minus the return of the S&P 500 market matches.

 

That leaves just 10 mutual funds, only one fund out of every 35 that outpaced the market by more than one percentage point per year.

Have a diversified stock portfolio

 

Investing in stocks is essential to having a diverse portfolio in many markets. When I speak about markets, I write about different countries around the globe.

 

That way, if there is a shock to the stock market or a company is now elated, you will not be too adversely affected.

 

It is important to remember that stocks have historically continually risen even during prolonged downturns after the great crash of 1929 and the housing market crisis in 2000, which led to the 2008 economic crash.

 

By diversifying assets in many stocks and wry searching the company’s performance, you will be able to track its continued success. This is where index funds come by investing in index funds.

 

You are almost guaranteed a return on your original capital.