How Many Stocks Should You Have in Your Portfolio?
With this year's rough ride, you don't need reminding that stocks are volatile. Their prices bounce up and down, sometimes in extreme ways. The U.S. market as a whole has produced average annual returns of about 10% over the past century, but it doesn't go up 10% every year. In roughly one out of four years, it declines – sometimes a lot.
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If stocks returned the same amount every year, then, like bonds, they would yield gains of only a few percentage points. High returns are the reward you get for enduring the fear (often the sheer terror) of watching pieces of your nest egg disappear into thin air.
People like me tell you to hold on. History shows that markets bounce back. But enduring sickening declines isn't easy.
The best way to smooth the
