Are shares, which are also called stocks, a good investment for your money over the long-term?
No-one has a crystal ball to tell you what is going to happen, but we can make an educated guess.
Returns are good over the long-term
Shares have been incredibly consistent over the decades, returning an average of around 10% per year over all that time despite wars, recessions, politicians, changing trends and so on. Of course in some years there are big returns like 2019 and in other years there is no growth when share prices decline. But, over the long-term the gains outweigh and outnumber the falls.
We can capture the overall returns of the whole share market through exchange-traded funds (ETFs) which invest a little bit in each company such as BetaShares Australia 200 ETF (ASX: A200) which tracks the ASX 200. The biggest allocation is to large shares like Commonwealth Bank of Australia (ASX: CBA) & CSL Limited (ASX: CSL) and the smallest allocations to the smallest shares in the index like Estia Health Ltd (ASX: EHE) and Hub24 Ltd (ASX: HUB).
Returns of 10% per year turns $1,000 into $2,000 in under eight years. Great, right?
Shares pay dividends
In the literal sense, most businesses pay out a portion of their profits each year to us as dividends or distributions.
Not only are most dividend yields from businesses a lot higher than what we can get from bank accounts, but plenty of businesses are growing their dividends each year too.
Some of the most promising blue chips are growing their dividends at a fast pace like CSL and Aristocrat Leisure Limited (ASX: ALL).
Dividends combined with long-term capital growth is a powerful mix.
The overall share market may produce handy returns, but the share market gives us the opportunity to invest in businesses at a fairly early stage of their growth story and achieve returns that double, triple or quadruple your money in just a few years. A select group of businesses produced total returns of over 1,000% in the 2010s.
Maybe Altium Limited (ASX: ALU), Pro Medicus Limited (ASX: PME) and REA Group Limited (ASX: REA) will continue to be big performers in the 2020s, but there are other shares on the ASX that could be the next cluster of winners.
However, you need to do a lot of research or be lucky to find one of these big winners for your portfolio.
The main difficulty with investing in the share market is holding for the long-term. It can be very discouraging seeing share prices go down. But that’s what ‘long-term’ means, you just have to hold and believe that shares will continue to rise over time like they always have.
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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Hub24 Ltd, Pro Medicus Ltd., and REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.