Why does Prospero.Ai focus on the stock market?

When it comes to financial security, there are many options and strategies to achieve it. The best options will be specific to your individual situation with your starting point, risk tolerance, investing horizon, the time you can dedicate to it, and your level of investing competency being just a few of the considerations at play. But there are a few realities that are hard to ignore. One of those is that the U.S. stock market has long been considered the source of the greatest returns for investors, outperforming all other types of investments including other securities, real estate, commodities, and art collectibles over the past century. While it does crash from time to time, on a timeline of 5 to 10 years, with a diversified portfolio, it will not just regain those losses, but still return a higher yield than most other forms of investing. To understand why Prospero.Ai focuses on the stock market, we can compare it to other forms of investing.

Bonds

Bonds are essentially loans to governments or corporations, offering a fixed interest rate. While they're safer, their returns are typically much lower than what you might see in the stock market. Stocks, on the other hand, represent ownership in companies, and their successes and failures directly impacts their stock price. If the company makes missteps or falls behind their competition, their stock price can tank. If a company thrives, its stock price can soar, significantly boosting your returns. Bonds, while not risk free, are more consistent, and their inclusion in your portfolio can help mitigate risk. But their growth potential doesn't come close to stocks.

Savings

While savings accounts have their purposes, we do not typically considered them a viable home for investing. The stock market offers the potential for significantly higher returns than savings accounts, even high-yield ones. Here's a breakdown of why:

Inflation vs. Interest: Savings accounts provide a safe haven for your money, but the interest rates they offer are typically quite low. This means your money grows slowly over time. To be clear, you absolutely should have a savings account, and it should be funded enough to mitigate emergencies. It is also a great place for specific goals like saving for a down payment on a home. But until about 2022, the typical interest rate on a savings account was 0.5%. Between 2010 and 2022, inflation averaged 1.7%. This means inflation was far greater than the typical interest rate. When inflation outpaces the interest you earn in a savings account, your purchasing power actually decreases over time. You are effectively losing money by keeping it in savings. This makes savings accounts a terrible place to store money over the long term.

Owning a Piece of the Pie: As noted above, stocks, represent ownership in companies. If those companies perform well, their stock price can increase significantly. This can lead to substantial growth in your investment. Imagine if you had invested in a company like Apple or Amazon just a few decades ago – your returns would likely be much higher than any interest you could have earned in a savings account.

The Power of Compounding: When you earn returns in the stock market, you can reinvest those earnings to buy more shares. This snowball effect, called compounding, can significantly accelerate your wealth growth over time.

Dividends: While increasingly rare in modern times, many stocks provide dividends to their holders. These payouts are based on the performance of the company and are in addition to any gains the stocks will have earned through increase in their current price.

Crypto

Stocks and cryptocurrencies offer contrasting risk-reward profiles. Stocks represent ownership in established companies with a track record of performance. Their value is tied to company health, influenced by factors like earnings and industry trends. This translates to a generally less volatile market compared to crypto. While stock prices can fluctuate, historical data suggests a long-term upward trend, offering the potential for steady growth with dividends on top. However, this stability comes with a trade-off: stock market gains are typically more modest than those potentially seen in crypto.

Cryptocurrency, on the other hand, is a far newer and more volatile asset class. Its value is primarily driven by speculation and adoption, making it susceptible to swift swings. This volatility presents a higher risk of significant losses but also the possibility of explosive returns. Unlike stocks, cryptocurrencies' underlying value is less clear-cut. Additionally, they exist in a regulatory gray area. If governments disabled the banking mechanisms that allow you to exchange crypto for fiat currencies, they would become largely unusable, and would rapidly lose their value.

These issues aside, there is a far more pragmatic reason Prospero.Ai doesn't provide predictions on Crypto; There's only about a decade of data on the leading cryptocurrencies, and far less on the myriad of others. Prospero.Ai is build on data science and data science is built on large amounts of high quality data, preferably going back many, many years. We are by no means encouraging or discouraging investing in crypto, and we are keeping an eye on how it develops. But until we can offer a valuable perspective with the level of quality we can with US Stocks, we'll not be providing one.

Mitigating Risks

Despite our confidence in our predictions and bullish stance on the US stock market's place in achieving financial security, it would be irresponsible not to point out the risks. Stock markets, unlike savings accounts and bonds, carry a lot of them. Stock prices can fluctuate dramatically, and you could experience losses as well as gains. This is why it's crucial to have a long-term investment horizon when considering the stock market. The ups tend to outweigh the downs over extended periods, allowing investors to capture the market's overall growth trend. The S&P 500 has gained 10.26% since its inception in 1957 with recent earnings being even higher.

Risk mitigation is why we built Prospero.Ai. If we believe the stock market is the best way to achieve financial security and we acknowledge its inherent risks, then the best way we can help people achieve financial security is to actively help reduce those risks. Prospero.Ai is built on risk reduction by way of demystifying the forces moving the market and making those insights and predictions available to the general population. We hope you'll join us on this journey by visiting Prospero.Ai, downloading our app, and folding our signals into your investment strategy.