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Stockholder Equity: Why You Want It

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So why buy stocks when you could just stash cash under the mattress or put it in a CD or savings account? The answer is simple: Over the long term, the stock market generally provides higher returns. On average, the stock market goes up around 8% per year, compared to around 2% for the highest-yield savings accounts.

Stocks do come with some risk, though. If the stocks you own become less valuable, your net worth goes down. If this happens, you’ll need to decide whether to cut your losses and sell, or ride out the volatility and stay the course. If you’re investing for the long term, most experts will tell you to go the latter route. If you panic in a downturn and “sell low,” and then you only “buy high” after stocks have become expensive, you’ll miss out on opportunities to increase your net worth.

The good news is that there is a way to remove the temptation to try to “beat the market” by timing your investments and hand-picking stocks. If you think you’ll be tempted in this way, it’s probably a good idea to steer clear of individual stocks and online stock-trading sites. Instead, consider low-cost index funds that track the market and stay strong in a downturn, knowing that over the long term, the market as a whole will grow.

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