Hello, my name is David Hood with Beginner Investing Made Easy and today I want to talk about Why Invest in the Stock Market for the Long Term.
A question not a lot of people ask is ‘Why stocks?’, but when they do, there’s two main answers that they are always given.
1. Highest Expected Return.
Of all the investment vehicles that you have over the long term, stocks will give you the highest return, but this is only guaranteed if you stick to it and don’t have any bad habits in investing — which a lot of people have. You have to invest cautiously and you have to do it right.
2. Bumps Even Out Over Time
Since stocks are more volatile than the rest of the investment vehicles that you’ll have, there are bumps that, for a long term, even out over time and for a period of 20 or 30 years, stocks are always going to beat out any other investment form that you have.
But these are not the real reasons why you should invest in stocks. While these reasons are true, they’re not the real reasons why it is valuable to you and why it’s valuable to everyone.
The following is the real reason:
3. Investing in the Exponential Progress of Humankind
What does this mean?
Progress Begets Progress ^ 2
This doesn’t only mean progress begets more progress, it begets much more. One single unit of progress begets many units of progress. It grows exponentially. If you were to look at the long term value of the Stock Market, it would look like this chart I drew.
Bumps in the road are to be expected, but overall if you look back far enough, the chart line’s just going to be flat and at 0. However in about 10 to 20 years, that’s where most of the game seems to happen and that’s because everytime you make a society of humans make progress, that progress enables even more progress and better progress.
A good example of this is when modern society started and the biggest inventions that got us where we are today.
I believe it all started with the printing press. It is what started the Renaissance which enabled science and practical thinking to come back and enable productivity to get us out of the dark ages.
The next one is electricity. Imagine what electricity does for us today. What would we do without electricity? Our society would be completely different today without it.
Math, Physics and Medicine enabled a lot of things. Math enabled Physics and more, like engineering, and Physics enabled a lot of high technology that we use today like the radio, TV and the internet.
Some of the smartest people wouldn’t have been alive without medicine. There is a huge difference between the mortality rate many years ago and today. Now, we are living a comfortable life where we don’t have to worry about suddenly dying from a cold or other curable diseases which weren’t curable before. There are still a lot of issues we haven’t solved, but Medicine has changed a lot things and done a lot for us.
The internet for me is the next printing press. It has changed so much. Think about how much more productive it makes the world. Sending an email is not just faster or more convenient than sending a letter, it’s cheaper. It is also easier and takes less time to read. Compared to listening to voice mails, you can process a lot more by reading your emails.
The internet is such a huge thing for us, and I believe the people in the late 90’s saw that, which is why there was a rush to invest in internet stocks. However, there are still plenty of things to discover and it will still continue to develop. With every new program or code, that will contribute to the development of the internet.
There really are only a few things that can stop the progress we have. There may be bumps in the road, take Europe as an example. In 2012, their economy is not good but if their companies keep making money and they keep improving products, making what people want, then eventually, they will progress.
Only a huge catastrophe can stop the progress we’ll make now. Asteroids, Nuclear War, etc. An example of a catastrophe that affected our development is the burning of the library of Alexandria. That event sent us into the dark ages for a long period of time. It would be unlikely for us to have another event like that, but not impossible.
And this is why to invest in the Stock Market for the long term.
Thank you for listening.