The other day I posted about the low yields in the bond market and as an alternative, you should look into investing in high quality stocks. I want to address a concern that some may have about the stock market: investing in stocks right now is too volatile.
While I agree that stocks are volatile right now, investors need to realize that this volatility is short lived. This is the main reason why an index fund tied to the S&P 500 is yielding more than 10-year Treasuries. The market is “paying” you to take on the higher risk.
The Volatile Stock Market
Remember with investing, the higher the risk, the higher the return you can expect to earn. If you are able to handle the short-term “noise” of the markets, you will be rewarded with a higher return.
Currently, the market is acting completely on emotions. If there is any good news, or anything that can be manipulated into good news about Greece and the European Debt Crisis, the market jumps. Any bad news on these topics, the market tanks. If anything, know that investing based on emotions is a bad idea. Your emotions are what get you into trouble in the first place when it comes to investing.
Understand that the market is going to jump around a lot over the next few weeks and possibly months. If you can accept this, knowing that in the long-term, the market will earn a decent return, then you will be able to assume the risk of earning a higher return by shifting some of your money into stocks and away from bonds. At the very least, before you run for the hills read my post on how to survive a volatile stock market. If you still don’t think that you can handle the volatility, then look into the other options I presented in my previous post to help you earn a higher yield, as they are viable options for you.
Hi, my name is Jon and I run Compounding Pennies. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.