There’s nothing worse that investing with a clear sense of direction. Without a clear investment goal in mind, you may end up just holding cash (the default asset for many people) or tread in and out of the stock market like a short-term trader.
Cash is an expensive asset to hold in the long run. For example, an inflation rate of 4% a year cuts the purchasing power of a dollar by half after 18 years. Stocks provide higher real returns than either cash or bonds but unfortunately, many investors of stocks do not hang on long enough to harvest the “equity risk premium” (the average excess return in stocks over bonds). The word “average” here is important, for it is meant to convey the idea that the equity risk premium plays out in favor of stocks only when the investment horizon is measured in decades, not weeks or months.
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