July was a very flat month. The Dow Jones is up approximately half a percent, which is insignificant. In today’s newsletter, we will discuss 2 things about the stock market. 1. Its value to you and 2. Its purpose to society.
The stock market is composed of companies that via the stock market you are able to buy into. When you buy Apple stock, you are buying equity in the Apple company, and your investment over the long run will track the growth of the company. In the short term, investing is volatile, but in the long term, a broad index like the S&P 500, is, at its essence, a reflection of the economy. When you invest in the S&P 500, you are betting on the continued growth of the United States’ economy. In our opinion, that is a good bet to make. If you disagree, do you believe the same about the economy of England, Canada, Mexico, etc. The stock market is a global marketplace. Investing in the stock market will enable you to keep earning money long after you retire, so any financial burdens you have in the future are reduced. As retirement involves a reduction of income, any reduction in your financial burden is essential. The stock market is one of the most effective wealth builders in the world. Over the last 35 years, the Dow Jones has grown at annualized rate of about 9%. Due to the power of compound interest, that’s huge. If you invested 50,000 dollars into the Dow Jones in 1985, you would have over 970,000 dollars right now. That is a level of return that vastly exceeds inflation and is statistically superior to other methods of investment. There is an incredible amount of wealth being created all over the world, the stock market is a way for you to share in that wealth.
The purpose of the stock market is to raise money. In order to grow, companies sometimes need more money than they are willing to obtain through borrowing or internal fundraising. They might need money to hire more people, to buy equipment, research and development, etc. The companies thus sell part of their equity to others in the Primary market and those buyers in turn if they need money can sell that equity to us on the Secondary market. Without the stock market, companies would be forced to grow much slower and there would likely be a lower quality product offering for us to purchase.
We sincerely hope you got value from this newsletter. We appreciate your business and trust.
Dan and Eli
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
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