When learning about how to invest the money in my 401(K) I would read in financial magazines and articles that stocks were the best investment for the long term, because over the long haul they had a return of 10% a year. And every time I read that it blew me away. Not because I thought that stocks must be pretty amazing things, but because I thought these guys writing these articles must be total idiots. Is there some law of science that says stocks must return 10% a year? Can one write an equation that proves that stock returns always revert to the mean, and that mean is 10% a year? No, of course not. Whoever came up with the “stocks return 10% a year” maxim had decided that historical events and trends of the 20th century would continue forever, and there would never be any sort of instabilities in our economic and/or political systems that would change the way businesses operate and prevent stocks from returning any more or less than 10% a year, over the long run.
“Stocks” are not a monolith. I’ve read a fair amount of personal financial planning advice that refers to investing as though it’s a matter of just putting your money into some ambiguous thing called “stocks” or “bonds.” It’s both simpler and more complicated than just that.
There are ultimately entities using your investment dollars as the fuel for their enterprise. Never forget that. If you approach investing blind to what underlies the concept and without a guide, you really are doing nothing more than haphazardly gambling.