In the long run, up!
As investors, our investment time horizon should be for the long-term (i.e. 5 years and above). That does not mean that we simply buy and hold a stock for that duration; it simply means that we should always have a certain degree of exposure to the stock market!
“Why so? Isn’t it risky to ALWAYS own shares, what if the market crashes?” one might ask. So allow me to bring up this wonderful chart on the historical performance of the traditional asset classes ranging from the dollar, gold, bonds, and stocks over the past 211 years (1802-2013)!
Adjusted for inflation:
$1 invested in dollars is now worth $0.052 (due to inflation)
$1 invested in gold is now worth $3.21 (meh)
$1 invested in bills is now worth $278 (not too bad)
$1 invested in bonds is now worth $1,505 (pretty good)
$1 invested in stocks is now worth a whopping $930,550!!! (holy cow!)
As you can see despite numerous wars, economic recessions, and stock market crashes over the last 211 years, the US stock market always eventually recovers and surpasses its previous peak!
“But…how is it possible that the stock market can keep rising over the long-term?”
In the long-term, stocks go up because of population and income growth. Increases in population and income increases demand for goods and services which in turn increases corporate profits and enterprise values which translate to higher stock prices! So if you, like me, believe that we human beings will continue to have our sex drive and the desire for a better life, the long-term direction of the market is up!
And that’s why we believe that stocks make the best long-term investment because of its amazing growth prospects!
Got a question? Ask us anything regarding Finances/Savings/Investments! We look forward to your questions for more #AskTLS posts!