PETER LYNCH 00:00
Before you start to invest ask yourself one question. “When will I need to use this money?”
The stock market is a long-term investment. If you need to use the money anytime soon, you should not invest in stocks. This is the money you are willing to put in the market and leave it there for 5, 10, 20, 30 years. That is the kind of money you can do well with. If you are worried about it, don’t invest it.
The stock market is volatile. Individual stocks are volatile. The average range for stock in a year is 50% between its high and its low. Stocks go up and down, the market goes up and down.
If you are investing with a one- or two-year time horizon, you should not be in individual stocks, you should not be in equity mutual funds. If you have been lucky enough to save up lots of money to send your children to college and there are starting school in two years, what are you going to do if the market goes down?
In the long term, 10, 15, 20 years or more, stocks have beaten bonds and bank certificates of deposits. But in the short term, there is no telling what will happen.
In 1987 the S&P 500 fell 33% from its August top to its October bottom. If you had the stomach to ride through that drop, you would have found that the S&P performance, from 1987 through 1992, still outperformed treasury bills and long-term government bonds, despite that decline.
If you want to double your money quickly and safely, fold it in half and put it in your wallet. Any other way you are simply gambling. A good stock can take two, three, even five years before it really pays off. It is not two or three weeks. It is not two or three months. My best stocks have been my 5th, 6th, 7th year. Give your investments time to grow.