Why You Should Keep Faith in the Stock Market

No matter what you think about the stock market, one thing remains true. It has a track record of delivering exceptional, long-term returns.

Whether you compare it to Treasuries, bonds, or cash, the stock market consistently outperforms the competition.

If you have doubts, I don’t blame you. Wall Street has taken investors on a wild ride over the past year.

We’ve seen rallies gain momentum, only to be met with sudden sell-offs. Not to mention the periods of frustrating sideways chop that seem to go on forever, leaving many scratching their heads…

In fact, it wasn’t until last month that the S&P 500 broke out of its yearly trading range.

Yet for many investors, the future continues to look uncertain as the Fed sticks with its long-time 2% inflation target. Last week, it raised interest rates by another 0.25% during its latest Federal Open Market Committee (FOMC) meeting.

Now, if you’re thinking about selling out of the stock market or staying away from it, that would be a mistake.

Today, I’ll explain why the stock market has a proven ability to deliver superior long-term returns. I’ll also show you why it remains a reliable wealth-building avenue for investors… and how you can take advantage of one rare event about to hit the markets.

Surging Against All Odds

Over the past 100 years, stocks rose through recessions, global conflicts, currency crises, and the Fed hiking interest rates.

Yes, we saw severe downturns, crashes, and plenty of sideways fluctuations. The second part of the 20th century was a particularly tumultuous period in our history.

Even so, stocks have been on an upward trajectory. You can see that in the chart below…

Take the 1970s, for instance. That’s when soaring oil prices triggered a period of stagflation. Prices skyrocketed, and the value of money dwindled. The purchasing power of the U.S. dollar even declined by over 30% at one point…

…Until the Fed swooped in to save the day.

The central bank’s then-chairman Paul Volcker raised the federal funds rate to fight inflation. Rates went from an average of 11.2% in 1979 to 20% in June 1981.

But his hawkish policy had ramifications. It caused the 1980-1982 recession.

Americans were hurt by inflation and the Fed’s “remedy” of raising rates. Today, something very similar is happening.

And yet, despite these headwinds, the stock market was a winning bet for investors. By the end of the 1980s, the S&P 500 had delivered an average annual return of roughly 17%.

Here’s what that means in dollar terms…

Suppose you invested $10,000 in the S&P 500 at the outset of this turbulent decade and chose to let it ride. In that case, you would be marveling at $40,000 in returns at the decade’s end.

That’s a clean 4x return on your investment.

Now, since 1957, the S&P 500 has returned about 12% annually on average. In contrast, the median inflation rate in the U.S. is around 3%. That means, on average, the stock market beats inflation by 9%.

It also means that $10,000 invested in the stock market 66 years ago would have grown to more than $6.3 million today.

But that’s not all. The stock market generates greater wealth than other assets…

Leaving Others in the Dust

The stock market doesn’t just beat inflation. It also outperforms most investment alternatives.

Consider this…

If you put just $100 into the stock market back in 1928, you’d be sitting on an impressive $761,711 today.

Corporate bonds? Around $54,238.

U.S. Treasury bills? About $8,527.

Here’s how this scenario – with a $100 investment put in each of these assets over a 95-year period – looks visually.

As you can see, stocks outshine other conventional investment options by a wide margin.

And if you’d decided to keep that $100 under the mattress, you’d be facing an extraordinary 95% loss in value.

There’s one interesting exception… which is investing in residential real estate. Research indicates that this strategy yields similar returns as stocks in the long run. That’s if you factor in the property’s gradual value appreciation and rental income.

But there’s a catch – real estate has a significant drawback of being illiquid. Unlike stocks, which are quick, easy, and inexpensive to trade, real estate is quite the opposite.

This article was originally published here.