How to invest in the stock market for peace of mind

Next, sit back and relax. What will your returns be? Though it obviously depends on stock market performance, below are some examples.  STRATEGY 1 Stock market annualized return Total

annualized return with CD -100% 0%  0% 2.3% 4% 3.26% 8% 4.50% 12% 6.02% Source: Depositaccounts.com In this example, you will get your $10,000 back, assuming you hold your CD to maturity.

(You’d get dinged with a penalty for early withdrawal.) For instance, if stocks return 8 percent annually (less than the historical average of about 10 percent), overall you’ll earn 4.5

percent annually and get back $15,525. Hopefully, this will be higher than long-term inflation. If stocks return the historical average of 10 percent, you’ll earn 5.22 percent annually and

have $16,638 at the end of 10 years. Ken Tumin, DepositAccounts.com founder, said, “This strategy gives people the emotional comfort to invest in stocks.” I think it also provides the

comfort to stay as well. TAKE A LITTLE RISK The above returns are modest but, let’s face it, if the stock market lost all of its value, capitalism has failed and, most likely, the U.S.

government with it. Your portfolio will be the least of your worries. So let’s use a reasonable worst-case scenario where stocks lose 50 percent of their value in a decade. This equates to

the stock index falling 57 percent, since reinvested dividends would dampen the drop to a 50 percent loss. By comparison, during the awful “lost decade” between 2000 and 2009, stocks lost

just 2.64 percent over the entire period, thanks in part to those reinvested dividends.  In the calculator, simply change one input from “worst case scenario” to “50 percent loss of stock

value.” Now you can put $5,925 in the CD and $4,075 in the stock index fund. With more in stocks, you have a greater upside, as follows: STRATEGY 2 Stock market annualized return Total

annualized return with CD -50% 0% 0% 1.87% 4% 3.42% 8% 5.30% 12% 7.50% Source: Depositaccounts.com If the stock market lost everything but the U.S. government survived, you’d get back $7,962

from your CD and lose $2,038 (a little over 20 percent). As long as the stock market earns more than the 3 percent CD rate, you’ll do better. An 8 percent average annual return for stocks

would yield a 5.30 percent return which, I hope, will be higher than inflation. If stocks earn the 10 percent historical average, you make 6.36 percent a year and have $18,534 at the end of

the 10 years.