Why invest in US Stocks in the Long-Term?
Given the current parlous state of the global economy is it advisable to put your trust in the US Stock Market? Surprisingly, the simple answer is yes. Wall Street demonstrated a sharp V-shaped dip and rally during the pandemic, beginning in March 2020. Despite everything, the S&P 500 index has weathered the crisis surprisingly well. Compared to alternative sources of investment (government bonds, property, bank interest) the potential dividends of stock investment remain higher.
See, for instance, a December 2020 article in Forbes magazine, which stated that “Last month, investors shoved a record $115 billion into the stock market through funds—the biggest inflow in 20 years. And spirits are lifting by the day.”
What about the Alternatives?
Compared to this remarkable boom in stocks, bank interest rates are depressed, to say the least. Brick and mortar banks are currently offering 0.05% for 1-2 years, and online banks are scarcely more encouraging, giving between 0.3% and 0.55% interest per annum for CD accounts.
US Treasury bonds have declined in recent years, As Forbes puts it “A decade ago a 10-year Treasury bond may have offered a yield of around 4%, and in recent years you could have received closer to 2%. Now it’s under 1%”.
“We believe that we are still in the early stages of a new bull market, transitioning from the ‘Hope’ phase to a longer ‘Growth’ phase as strong profit growth emerges” — Peter Oppenheimer, chief global equity strategist of Goldman Sachs.
Mexican government bonds aren’t faring much better – their Central Bank Rate is set to 4% currently and a 10-year bond offers 5.59%. Although the Canadian dollar is a stronger currency than the peso, Canadian banks are offering just 0.25% and their 10-year government bonds yield around 1.158% annually.
Compare this to the average annual return on investment in the S&P 500 index, which, at time of writing, stands at around 10% and has reached as high as 11%, and you can see where the stock market wins out over other places to put your savings.
Too Good to Last?
Although some are warning that the bubble might soon burst, due in part to volatile factors such as an increase in margin debt and fiscal activism (for example, the recent GameStop debacle), others are bullishly asserting confidence. At present, the market just keeps expanding and now is evidently the time to get in on the action.
As Peter Oppenheimer, chief global equity strategist of Goldman Sachs put it “We believe that we are still in the early stages of a new bull market, transitioning from the ‘Hope’ phase to a longer ‘Growth’ phase as strong profit growth emerges,”
It appears we might be running with the bulls a while longer.
