Introduction-Why Invest in the US Stock Market?
Updated: Oct 15, 2021
This post provides a brief introduction to the course, presenting the case for investing in the US stock market.
Over the past century, the US stock market represented by the S&P 500 Index, a basket of 500 of the largest US companies, has outperformed the bond and housing markets, gold, and savings accounts. Bonds are mainly used in retirement investment portfolios to reduce risk exposure. Low-risk investments yield lower returns, as a result, investing $100 in 10-year Treasuries (US government bonds) in 1928 would be worth approximately $8,000 today, compared to $500,000 if it were invested in the S&P 500. Contrary to popular belief, investing in property yields lower returns than investing in the stock market, $100 invested in the average home between 1975 and 2013 would have grown to only $500, compared to $5,832 if it were invested in the S&P 500. Gold is negatively correlated with inflation, as a result, it is used in portfolios to hedge against inflation rather than achieve capital appreciation. One troy ounce of gold in 1970 held until September 2020 yielded 5,333% compared to 68,430% returned by the S&P 500. The average interest earned on savings in the US from 1971-2021 was 5.52%. However, since 2000, interest rates have steadily declined due to low inflation rates (refer to figure 1), resulting in a 1%-2% return over this period. In contrast, investing in the S&P 500 since 1993 would have yielded an average annual return of 10.35%.