Stock Market Returns Pitfalls

Often statements on the annual return of the stock market are made in order to show the percentage you will receive if you put your money in stocks and leave them there to stay over the long term. However, a 10% annual return is usually taken out of the context and as a result many beginner investors are misled.

So, the next time you hear that the stock market generates 10% return on the investments made in the stock market you should stop and ask which investments in particular will generate these returns. Additionally, the purchase of several stocks will not guarantee you these returns but on the contrary may bring you losses.

Additionally, no specification on which portion of the market will give you the dreamed 10% return. For instance, if you purchase mutual funds, they will track the behavior of such indexes as the Russell 3000 or the Russell 5000, which represent a big portion of the market. But, looking at their performance records, no significant results have been shown.

What is more, by purchasing individual stocks, you are not buying the market. So, the performance of the market is of little concern to you.

What you should pay special attention to is the performance of your overall investment portfolio. You can also make regular comparisons to different benchmarks (e.g. the S&P 500) to get a view on the performance of your investments.

In order to achieve good financial results, you should stick to the purchase of quality stocks. The latter should meet your financial goals ignoring the statements of the potential 10% stock market returns.

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