6.3. Modelo de Comportamiento del sistema
6.3.3. Modelo de Comportamiento: Unirse a Partida Mul- Mul-tijugador
Investments involve risk. The market value of a real estate or corporate stock investment can change dramatically in a relatively short period of time. Even if the nominal return is guaranteed, as is the case of high-quality bonds, changes in the interest and inflation rates can substantially change the value of the asset. If you have most of your wealth tied up in the ownership of a piece of real estate or a small number of corporate stocks (or even worse, a single stock), you are particularly vulnerable.
The recent experiences of those holding a large share of their assets in the equalities of firm such as Enron, WorldCom, United Airlines, and Time Warner illustrate this point.
If individuals are going to achieve their financial potential, they must channel their savings into investments that yield attractive returns. In the past investments in the stock market have yielded high returns. Stock mu-tual funds make it possible for even small investors to hold a diverse port-folio, add to it regularly, and still keep transaction costs low. Investing in a diverse portfolio of stocks over a lengthy period of time reduces the
What Everyone Should Know About Wealth and Prosperity
You can reduce your risk through diversification—holding a large number of unrelated assets. Diversification puts the law of large numbers to work for you. While some of the investments in a diversified portfolio will do poorly, others will do extremely well. The performance of the latter will offset that of the former, and the rate of return will converge toward the average.
For most people a home purchase is likely to be their major investment, at least initially. If it is well maintained and located in an attractive com-munity, a home is generally a good investment. Beyond that, for those seeking to build wealth without having to become involved in day-to-day business decision making, the stock market can provide attractive returns. It has done so historically. During the last two centuries, after ad-justment for inflation, corporate stocks yielded a real return of approxi-mately 7 percent per year, compared to a real return of about 3 percent for bonds.
The risk with stocks is that one can never be sure what they will be worth at any specified time in the future; inevitably there will be periods over which the market value of your investments is falling. But that risk, known as volatility, is a big reason why stocks yield a significantly higher return than saving accounts, money market certificates, and short-term govern-ment bonds, all of which guarantee you a given amount in the future.
Since most people value the additional certainty in the yields that bonds and savings accounts provide over stocks, the average return on stocks has to be higher to attract investors out of the more predictable invest-ments.
The risks of stock market investments are substantially reduced if one either continually adds to or holds a diverse portfolio of stocks over a lengthy period of time, say thirty or thirty-five years. Even a small investor can choose this option through an equity mutual fund, a corporation that buys and holds shares of stock in many firms. When a diverse set of stocks has been held for a long time, they have yielded a high rate of return, and the variation in that return has been relatively small.
Suppose a person paid a fixed amount annually over a thirty-five-year period into a mutual fund that mirrored the S&P 500, a basket of stocks that are thought to represent the market as a whole. Since 1871 the av-erage real return over the various thirty-five-year periods has been ap-proximately 7 percent, after adjusting for inflation. Perhaps even more significant, the inflation-adjusted annual return over any thirty-five-year period was never worse than 2.7 percent.6 Even this unusually low return is still approximately equal to the return one could expect from bonds.
Diversification will reduce the volatility of investments in the stock market in two ways. When some firms do poorly, others do well. An oil price de-cline that causes lower profits in the oil industry will tend to boost profits in the airline industry because the cost of airline fuel will decline. When profits in the steel industry fall because steel prices decline, the lower steel prices will tend to boost the profits in the automobile industry. Of course general economic conditions can change, such as with a recession or an expansion, causing changes in the value of the stocks of almost all firms.
But even in such a case, diversifying reduces the volatility in the value of your investments because a recession is worse for some firms and indus-tries than others and a boom is better for some than for others. The re-cession that harms Nieman Marcus may boost sales and profits for Wal-Mart.
Some employers offer retirement programs (such as a 401 [k] plan) that will match your purchases of the company stock (but not investments in other firms) or will allow you to purchase the company stock at a substantial discount. Such a plan makes it more attractive to purchase the stock of the company that you work for. If you have substantial confidence in the company, you may want to take advantage of this offer. After a holding period, typically three years, these plans will permit you to sell the pur-chased shares and use the proceeds to undertake other investments. As soon as you are permitted to do so, you should choose this option. Failure to do so will mean that you will soon have too many of your investment eggs in the basket of the company for which you work. This places you in a position of double jeopardy: Both your employment and
9
risk of stock ownership to a low level. While all investments are charac-terised by some uncertainty, you can have a high degree of confidence that, over the long haul, a diverse portfolio of corporate stocks will yield a higher real return than savings accounts, bonds, certificates of deposit, money market funds, and similar financial devices. Ownership of stocks through mutual funds is particularly attractive for young people saving for their retirement years.