Equity Investing: Long Term Wealth Protection

The upward movement of stock values over time overwhelms the short-term fluctuations in the market.   – Prof. Jeremy Siegel, Stocks For The Long Run, 2008.

It is always tempting during declines in investment markets to think equities are dead as an investment and that fixed income was the way to go.  On another page we saw that while fixed income seems attractive at first, it leads to a progressive depletion of capital due to the rising cost of living.  It makes no sense to invest for a fixed income in a rising cost world.

The alternative is to invest in the source of all wealth creation on earth: in businesses, in people at work, in companies, in equities, in stocks. All these are equivalent.

If you invested in a diverse pool of the shares of the world’s great businesses 30 years ago, the dividends they pay have risen about five times over and their share prices are up about ten times. This has occurred through and in spite of numerous wars, disasters and crises.

The long term return on stocks is more than 6% higher than inflation.  Investing in stocks allows you to spend the same retirement income as bonds and also enjoy asset growth and inflation indexing of your income.  An excellent financial planner understands the relationship between inflation and equities and helps you incorporate this principle into your total plan.

Total Real Returns for USA, 1802-2010 Source: Stocks for the long run, 2008, Jeremy J. Siegel.

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