Why should investors consider common stocks as an investment vehicle if they have a long term time horizon?

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readerofbooks eNotes educator| Certified Educator

This is a good question. The question suggests that buying common stocks is a guaranteed way to make money in the long run. I think there are a few reasons why people think this. First, people usually look at inflation. They believe that  in time everything will go up. Historically this might be true, but not always. I will explain later. Second, people are usually just too optimistic. They again believe in unlimited growth. Based on these points, they make this assumption, but I would like to challenge it.

You need to realize that some companies go under. Think of Enron, Worldcom, and Lehman Brothers. They all went under. Think of the Nikei, the Japanese stock index, which is still down after twenty years. Long term does not ensure growth. This is especially so in this economic climate.

With that said, long term investments are probably better than short term ones.

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