Why we invest in stocks and not in bonds or even save your money in bank? There are goals associated with investing in stocks. For starter, stock investors would want to be compensated more than if they put their money in the bank. Stock investors even want to be compensated more than the risk free interest rate. For your information, risk free interest rate here is the 10 year Treasury bond which is backed by the United States Government. These bonds are deemed to be free from the risk of default.
Therefore, when we invest in stocks, we would want a return in excess of bank interest rate. How much additional return for an investor expected? That varies within individuals. Some wants a 5% return from their stock investing. Others are satisfied with 8% return. from stock investing. Even some investor is looking more than 10% stock investing return. For me, I would set the return at least 8-10% from my stock investment.
Stock investing is relatively volatile, full of uncertainty and high of risk. Interest rate goes up and down which will affect our return from our stock investing. If today, interest rate rises from 4% to 6%, and you are aiming a 5% return for your stock investment, will you still want to put your money in stock investing? Probably the answer is not. In this case, most people same opinion with you, they will stop their stock investing and prefer to put their money in the bank to enjoy the higher return.
Before we decide to put our money in bank or stock investing, we need to run some research. We need to know how much return from stock investing have given to investors historically. For the US stock market, the average stocks investing return for the last century has been around 10%- 15%. You invest in US market not because of you want to own a piece of corporate in US. You invest in US market stocks because historically it proof you a better return if you compare with other investment tools.