DAVID PAGE,CFP. CSA. CDFA.Sr. Exec.
If we’re in the midst of an economic supercycle, equities are the key to unlocking its investment potential.
Compared to other asset classes, equities provide greater long-term returns potential, protection against inflation and preservation of purchasing power.
Unlike investments such as bonds or money market securities, when you invest in stocks you own a piece of a business and its future. When that business profits, your portfolio has the potential to profit along with it. Earnings are the primary longterm driver of equity returns, whether through rising share prices or increasing dividends.
History demonstrates the superior returns potential of equities. For example, since 1950 the average rolling 30-year compound total return (including dividends) for Canadian equities represented by the S&P/ TSX Composite Index is more than 10%. (Rolling periods are based on a series of regularly occurring dates used as starting points for each 30-year cycle.) Over that time, returns for different 30-year periods have ranged from 8.3% to 12.7%. Despite temporary declines, the long-term direction of stock markets is up.
Equities and a supercycle are a good fit. They’re both long-term investmentthemes. Stock market investors with long investment horizons are in the best position to benefit from this global transformation. Equities open the door to the abundance of opportunities that an extended period of economic growth brings. Whether you’re interested in emerging business sectors catering to new waves of global consumers or established companies innovating and reinventing themselves, stocks provide an investment edge.
In fact, nobody has greater opportunity to reap the rewards of a supercycle than younger investors, who have the time to maximize the high compound returns equities offer.
Yet there is evidence that many younger investors are reluctant to embrace stocks after the market downturn of 2008-2009.
A study late last year by the Investment Company Institute, a national association of U.S. investment companies, showed that only 22% of those under age 35 are willing to make investments that pose a “substantial level of risk.” Only a decade earlier, these same young adults were willing to take on more risk than any other age group.
If you’re young, or have many years of investing ahead of you, favoring conservative investments over equities can be costly. You risk missing out on the best returns a growing economy has to offer. Yet a vision of the future that includes equities as a way to take advantage of the wide-ranging potential of economic growth can help you reach your financial goals.