There are three assumptions about the stockmarket which generally hold true:
- Firstly, the stockmarkets often rise.
- Secondly, the stockmarkets often fall !
- Thirdly, over a long time period (say 30+ years), the stockmarkets should provide returns ahead of other asset classes.
History has taught us this and the above assumptions have certainly held true over the previous five decades.
For example, by 1960 most of the world had moved on and managed to recover from the second world war. In the 5 decades since 1960, the UK stockmarket has risen in about three-quarters of those years and hence fallen in about one quarter of those years. This validates the point that markets rise and fall.
History also proves that the short term performance of the stockmarkets is fairly unpredictable. In contrast, when you take a long term approach, the performance has proved to be far more dependable. So if you are prepared to take a long term (or even a lifetime) approach to investing, you will probably achieve a very successful outcome.
This is illustrated perfectly well by analysing the returns of major assets classes over the previous 5 decades – For the UK, we can observe the following annualised percentage returns:
| Asset Class | Annual return | Value of £1000 over 5 decades |
| – Equities (stock-market) | 12% | 289 000 |
| – Property | 10% | 117 000 |
| – Gilts (Government Bonds) | 8% | 47 000 |
| – Cash | 8% | 47 000 |
| – RPI (Inflation) | 6% | 18 000 |
So there you have it. Given a long-term approach, investing in the stockmarket can give you a very positive return indeed.