One of the greatest benefits of investing early is that you will put the enormous power of the financial markets on your side for a longer period of time.
Just how powerful are these market forces? Over the last 14 years, some of the best-performing investments were small-company U.S. stocks, which averaged 8.5 percent; high-yields bonds averaged 9.2 percent; and emerging market stocks averaged 9.8 percent.
(Keep in mind that small-company stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small-cap market may adversely affect the value of these investments. High-yield/junk bonds [grade BB or below] are not investment-grade securities and are subject to higher interest rates, credit and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors. International investing involves special risks not present with U.S. investments, due to factors such as increased volatility, currency fluctuation and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.)
Now it’s pretty unlikely that you are only going to have the top-performing sectors in your investment portfolio. But according to J.P. Morgan, a diversified portfolio would have averaged 6.9 percent over that same period.
Keep in mind that these returns include the poor performance of the Great Recession. Other than investing, where else could you find returns like those?