Why Invest in Stocks? Investing for the Long Term

Investing, however, is not a one-year endeavor.

Most investors start their programs in their 40s and 50s, which means they could be investing over a 20, 30, or 40-year period.


5-year periods

If we look at the relative returns of different investments over 5-year periods - rather than 1-year periods - the results are even more encouraging.

During the years from 1960 through 1994, there were 31 such periods.

In only 2 of 31 of those 5-year periods did the total return of the Standard & Poor's based portfolio become negative.

29 of 31 such 5-year periods gave positive total returns.


10-year periods

Let's move ahead to all 10-year holding periods.

There are 26 in that span.

Exactly 100% worked out profitably.


Average annual total returns

Equally important, the returns to the investor were impressive in all of these 1, 5, and 10-year periods.

For instance, the average annual total return:

• for 1-year periods was 11.1%;
• for 5-year periods, it was 10.5%, and
• for 10-year periods, it was 10.2%.

Based on this study, we can say with confidence that over a lifetime of investing, an investor will reap a total annual return of 10% or more.

If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.


Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice