Stock market dominates conversations everywhere. Thousands of people have lost significant portions of their investments and now have to reconsider their retirement plans. While this is quite tragic, the overall tone of these conversations fueled by the hysterical media coverage has become so negative that the term stock market has almost become derogatory. But is investing in the stock market really as bad as it is portrayed?

Let’s look at some numbers. A good measure of investment performance of the Canadian stock market is the TSX index. A $100 invested in stocks represented by the TSX in 1950 would have grown to $40,351 today as compared to only $5,593 if invested in GIC’s. The difference is stunning. Even though market downturns, like the one we are experiencing today, have happened many times over the last half a century, the average return of the TSX index for the same period was 10.8%.

On the other hand, we have seen periods when the index lost close to a half of its value in just a couple of years. But those years were usually followed by good years when this value not only recovered but increased at astounding rates. For example, if you had invested $100 in the stock market in 1976, in 1981 it would have grown to $500. Thus, good years outplay the bad and average long term return is higher than any other investment can produce.

Even the Vancouver real estate which has become an obsession of many in the recent years has produced only an 8% return historically. In addition, real estate is highly illiquid, which means that when the market is down you can be stuck with your investment or have to liquidate it at a heavily discounted price. On the other hand, stocks are generally liquid and you can sell them whenever you want. There are certain basic rules one has to follow when investing in the stock market. First aspect to look at is time horizon. If you expect to cash in your investment in less than 10 years, especially when the investment is made for retirement, stock market is not the place to invest. Only a substantially long period can ensure that the combination of ups and downs will produce a decent overall return.

Another important element is your personal risk tolerance. If you tend to panic when your investment loses value and run away, stock market is not for you. Only by staying invested when times are bad you can hope for recovery. And that takes some nerves! And last advise, don’t do it yourself. Just like you go to see a doctor to take care of yourself, go see a qualified investment professional if you are serious about your financial health.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.