A new Gallup poll shows that 50 percent of wealthy investors — those with over $100,000 in assets — view the stock market as a good or excellent way to grow money. Only 27 percent of poorer investors — those with less than $100,000 — feel the same way:
There are likely many reasons poorer investors see stocks this way. For instance, their smaller portfolios could mean their returns feel less impressive. Or maybe they're more susceptible to downturns and thus must more frequently liquidate their assets. Or maybe — and perhaps most likely — they're simply poorer overall and thus more skeptical of the stock market's power. But whatever the cause of the disparity, it doesn't change one essential fact: The stock market is historically the best place to invest your money.
This is most likely because stocks are productive assets — businesses that produce goods and services, with the aim of maximizing value for investors.
This productivity advantage has meant that, over the course of the last two hundred years, putting your money in stock indexes has been by far the the most profitable way to invest.
There are two important caveats to add to this.
First, stock indexes can be highly variable in the short term. Someone who bought at the top of the market in 2006 or 2007 wouldn’t have broken even until 2012 or 2013. These downturns can last years. But in the longer term, the picture is clear.
Second, investing in stock indexes does not mean trading stocks multiple times a day — that is speculative daytrading, and it incurs lots and lots of profit-destroying fees. Daytrading is also highly risky — over 80 percent of day traders lose money.
Nor does it mean buying the stocks of individual companies — that is stock picking, and lacks diversification.
Investing in stock indexes means buying boring index funds like the Dow Jones and the S&P 500 and sitting on them for as long as possible, preferably until retirement or longer to allow the gains to compound.
That — at least during the last 200 years — has been one of the surest roads to growing wealth.
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- How a degree from Duke University dashed my dreams of buying a home
- This is why you can't trust the NSA. Ever.
- Innocent before proven guilty? The bizarre bipartisan rush to clear Rick Perry
- Why you should stop believing in evolution
- Half the world's population lives in these 6 countries
- The single best way to help your kid succeed at school
- Today in history: Lincoln reveals the real goal of the Civil War
- ISIS and the echoes of the West's religious terror
- What Keeping Up with the Kardashians can teach America about interracial marriage
- How Israel's hawks intimidated and silenced the last remnants of the anti-war left
Subscribe to the Week