Are stocks worth the risk?

If history indicates that stocks are highly likely increase your net worth over long periods of time but that your investments could lose half of their value in just a few weeks, would you take the risk? Why or why not?

Stocks are worth the risk if you are investing for the long term, since short-term volatility is more or less meaningless if that isn't your investing time frame. However, if you are the sort to panic over short-term fluctuations, it's possible that stocks are not for you even if they make sense in other financial aspects.

If you are investing for a short-term goal, then you really shouldn't do it in stocks. That's because you run the risk of being forced to sell at a short-term dip in the market.

By the way, your stocks losing half their value in a few weeks is an extraordinarily rare event if you are diversified and if you are a typical long-term investor; I don't believe, for example, that there's any case of that in recent history for the S&P 500 index -- even the 9/11 attacks didn't do that. But if you are a day-trader taking a gamble on dicey short-term moves of a single stock, it may not be unusual.

If you are investing for a far off goal, like retirement, and have the intestinal fortitude to suffer through the drops, stocks are the way to go.

Yes the risk is relatively small when stocks are held for years, or buy and hold.

Not investing in stocks is actually more risky over the long term. Inflation averages 4%. Stocks are the only public investment that beats inflation by an amount that makes it worth while. With savings accounts you are losing money. Most bonds, T-bills and Money Market accouts don't or just barelly beat inflation. If you money isn't growing enough to significantly out pace inflation then that is the real risk.

Yes, that is the risk you take, but the reward is the stock can can go the other way and you make money.
Just don't get greedy and hold for to long, take your profits when you can .

If you are diversified, stocks will beat usually other investments in the long-term (5+ years). Expect annual returns of 10-15%. Also, expect that when returns are higher than this for a number of years, the market will likely go down or sideways for a while...

It may be worth the risk if you consider the following:

- If you can recognize the beginnings of bull markets and bear markets and adjust your investments accordingly. For example, buying stocks or the market index at the end of a bull market (ie. Oct 2007) is not a good idea.

- If you do not trade on margin. Use cash to pay for all purchases.

- Identify appropriate spots at which to take profits. Perhaps after five years your investments are up 20%, maybe you would decide it's a good place to liquidate your holdings.

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