I came across an interesting article on Reddit the other day. This person was asking why can we assume the stock market will increase over the long-term? Here is their question:
New to investing – why is it “safe” to assume the market will increase the next 40+ years? from r/personalfinance
What an enlightening thread. Below are my key takeaways:
- As people work and produce more valuable materials + services, the stock market value will go up.
- Advancements in technology + research will increase value.
- More workers and more money floating around will drive prices up.
- If the world generally stays peaceful and the population grows, markets should continue to grow.
- As life expectancy increases, more people will be looking to invest their money in long-term gains.
- Large American businesses are not 100% dependent on the US economy, and international expansion is growing.
- It probably is not safe to “assume” anything will happen for sure in the future. However, the stock market has a good chance of going up over the long-term. With that in mind, past returns do not guarantee future returns.
- Let’s say the stock market tanks, what other investment options do we have that also wouldn’t get affected? If you dump all of your money into a savings account, that amount will be worthless by the time you retire. In other words, by not investing, your future has a 100% chance of financially sucking ass.
- If we have a positive outlook on humanities ability to innovate, the economy should grow. Innovation grows exponentially (one innovation breeds other innovations).
- Computer technology advancements, space travel, energy efficiency, etc… put the future in a positive light with an infinite amount of possibilities.
- If you continue to invest in the good and the bad times, this should help towards your long-term gains (dollar cost averaging). It is a different story if you invest a large sum one time.
- When considering growing our investments, we are not only concerned with price appreciation, but with receiving dividends. As the user “OfficeOfUncollection” puts it in regards to dividends: “It causes the investment value to go up, if it’s reinvested and not spent on blow…”
- Corrections and downturns in the market will happen. But they are not expected over vast amounts of time.
- Diversification can act as a safety cushion under specific scenarios.
- If we are concerned about things not improving over the long haul, we are best to prepare by storing goods for the zombie apocalypse. Examples would include emergency food, shelter, medicine, manuals, guns, ammo, etc.
- Interesting fact: as the population gets more educated, the birth rate tends to go down. Whether this becomes an issue in the long-term future, who knows.
- It is possible that the rate of return for stocks decreases, while the return on bonds increases.
- Companies that are not profitable get replaced with companies that are. In other words, the market is self-correcting in a lot of ways over the long term.
- If we stifle immigration, we could end going down the same path of Japan. But even Japan had 5% returned through a stagnant market.
- Based on the records we have, the stock market has increased over long timeframes. So it would have to be quite an anomaly for that not to continue over the long term.
What a fascinating read. I hope you enjoyed this as much as I did. 🙂
Did you find this thread interesting? What are your outlooks over the long-term for the stock market?
Chris is a financial blogger who loves to be transparent about money-related issues. He’s paid off massive amounts of credit card debt and is the blog author of Money Stir. His main focus on Money Stir is talking about how money relates to our relationships, personal development, and how to plan for the future we want. He’s been quoted on Market Watch, The Ladders, and other publications.