pension or savings account

Aegis

thor wrote: »

Past history is no guide to the future. Stocks and shares could have risen over the last hundred years but who is to say that they won't fall over the next century? There is no fundamental reason for it to go one way or the other. It's all a gamble.

Past history is no guarantee of the future, but we would be foolish to ignore the past completely. The fundamental reason for investing in stocks and seeing them generally rise is that businesses which don't retain profit and show a positive return tend to go out of business quite quickly, while companies which generally manage to retain profit year on year will reinvest the profit, get bigger and will therefore have an increase in their net asset value.

If you operate on the assumption that more companies will stay in business once established than will go out of business all of a sudden, you can see the logic behind steadily increasing share prices rather than steadily decreasing ones over the next century (steadily decreasing would mean that almost all companies were losing money every single year, which would be an extremely bad business model to follow and would leave us in very strnge times indeed.).

All in all it's a valid assumption to state that stocks are more likely to generate good returns than cash, but with added short-term periods of falling prices.

As such, it's not just a gamble, it's a well thought-out strategy for beating cash in the long run based on how companies and markets are likely to behave.