Adam Dretler, principal with Diversified Trust is a member of the PAC of The Jewish Federation, and serves as Chair of The Federation’s Investment Committee
By Adam Dretler
History shows that the modern investment structure can be traced all the way back to Amsterdam in the 1600’s, with the formation of the Amsterdam Stock exchange. Some argue, however, that we can look even further back in history, to 1700 BC (!) where The Code of Hammurabi actually shows a legal framework for investing. Here in the United States, the first stock exchange was the Philadelphia Stock Exchange, founded in 1790. Two years later, New York Stock Exchange (abbreviated as NYSE) followed, and quickly rose to prominence. Needless to say, individuals and families have been investing for centuries, and stocks have been a great source of financial growth. However, the stock market is not for everyone, which is the topic we will discuss below.
The US stock market broadly refers to the collection of exchanges and other venues where the trading of shares of publicly held companies takes place. Each market has a different purpose, and before one decides if investing in stocks is right for them, it is important to understand all the different markets one can access, as well as the risks associated with each. The most prominent venue that garners the most attention is the S&P 500. This index tracks the performance of 500 (actually 505) large companies listed on stock exchanges in the United States, across 11 different sectors. Some of these sectors include Information Technology, Healthcare, Financials, Industrials, as well as a handful of others. When you “buy” the S&P 500, you are getting a very good representation of the entire US economy and over the past 50 years, the average annual return for the S&P 500 has been 10.83%. It is important to note, however, that only a handful of years came within a few percentage points of that actual average. There have been many ups and many downs in the stock market. Some of these down periods have been very significant, which leads to the question of whether investing in the stock market is the right decision for you and your family. The answer to this question is…IT DEPENDS!
The stock market has proven to be a great vehicle to provide strong investment returns over long periods of time – but there are many factors that need to be taken into consideration before investing. These include your time horizon, your appetite for risk, the purpose of the capital you invest, the need for the funds in the near term, as well as a handful of other topics to consider. It is also important to understand the concept of diversification. Diversification is the practice of spreading your investments across multiple asset classes so that your exposure to any one type of asset is limited. This concept of Diversification is also true when investing in the stock market, where there are many options. This is a great way to balance the risk and reward in your portfolio.
There is likely a place in your investment portfolio for the stock market, and these assets should grow over a long period of time. The key however is to have a sound plan. The personal financial goals of your family need to first be memorialized, and it is only then that you should begin to explore the stock market and decide if it is the right investment for you.
Adam Dretler is a member of the Jewish Federation of Nashville Professional Advisory Council (PAC). He can be reached at Diversified Trust, firstname.lastname@example.org, 917-613-0768 For more information about the PAC members or the upcoming seminars, please contact Shannon Small, Assistant FRD Director and Foundation Director at email@example.com.