Equities – The Superior Long-term Investment

As recent history can attest, stock markets experience their ups and downs. Yet despite periods of turmoil and volatility -- whether caused by recession, inflation, interest-rate changes or political uncertainty -- stock markets have historically kept moving on to new highs. Thus, the potential benefits of long-term equity ownership.

Equity ownership allows you to participate in corporate success. As part owner of a company, you benefit from the growth in value of the corporation -- as management achieves greater profitability and either reinvests profits in the business or pays them out as dividends.

Of all three asset classes - equities, fixed income, and cash and cash equivalents -- equities have historically provided superior capital appreciation over the long term. In fact, equities have outperformed every other class of financial assets over almost every long-term period, regardless of the starting year. The only obvious exception was in the early 1980s when the return on bonds benefited from the abnormally high interest rates that prevailed in that decade.

Having said that, it bears repeating that when it comes to equities, a long-term strategy proves most effective. In short, time moderates the impact of short-term fluctuations in the stock market. What else should you know? Consider the following:

  • Diversification reduces the inherent risk of owning only one or two stocks. This essential requirement for successful investing can be achieved by spreading holdings geographically, as well as across different security types, sectors and industries - and also by investing in an appropriate number of individually selected securities.
  • Stocks can offset the ravages of inflation, which, although quiescent for now, remains a longer-term threat.
  • The reinvestment of dividends, often possible through Dividend Reinvestment Plans (DRIPs), can also significantly boost the total returns on successful equity investments over the long term.

For investors adhering to a conservative, long-term, buy-and-hold investment strategy, stocks have proven to be a superior way to preserve and create wealth.

So what's the next step? You should start by speaking with a CIBC Wood Gundy Investment Advisor who can help you determine if equities are suitable for you and your investment portfolio.

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