the right way to invest blog
The best way to pay for college out of pocket is with a 529 college savings plan. These plans were created in 1996 with the intent of participants setting aside funds to pay for college sometime in the future. The best part of these plans, and what makes them such an effective tool to pay for your kid’s college, is earnings in the plan grow tax-free if used for qualified higher education expenses. Why is tax-free growth so important and what are qualified higher education expenses?
“Good stock picking is controlled by good luck; bad stock picking is controlled by bad luck. Luck determines your stock picking ability.”
There is no evidence proving anyone can consistently pick stocks and outperform the market’s return over time. We all get lucky and we all get unlucky, too. Picking individual stocks is a coin flip, you will be right 50% of the time and you will be wrong 50% of the time.
I don’t like those odds. Some people will get lucky a few years in a row; these people attract the press and get labeled stock pickers or great mutual fund managers. But the truth is these people inevitably underperform the market average over any given length of time – history has proven this. The general consensus is that a stock picker or a fund manager needs at least 20 years of performance to remove luck and chance from their return track record before any conclusions can be drawn.
“The only stock price pattern is randomness; you cannot predict the future price movement of a stock (and no one else can either)”
Stock prices are determined by supply and demand; because prices reflect all known information a mispriced security cannot be known in advance. Take every single investor in the stock market universe; they are all doing technical analysis, fundamental analysis, following the advice of a broker, listening to a friend with a hot stock tip, throwing darts at board with ticker symbols on it, etc. – they are doing anything and everything to form an opinion about a stock.
We invest to make money. We buy stocks because we want to see the stock price go up. Have you ever met anyone who buys a stock hoping it will go down in price? But we also invest because we want to see our stocks go up more than the stocks we didn’t pick or all of the stocks out there (known as the market).
Michael Pensinger, CFP® is Owner and President of Pensinger Financial, Inc.
He grew up in Park Forest, Illinois and now resides in Lemont, Illinois with his wife, two children, and two dogs. Michael serves as Treasurer on the Lemont Area Chamber of Commerce Board of Directors and he volunteers for the Lemont Open Space Committee. Read More