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

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Common stocks are good vehicles for long-term investing because they have very long appreciation times and maturity dates. For many investors, the investment plan is essentially to “park” your money in the stock market and not touch it, either to withdraw or trade. This is a good option if you can simply wait for the funds to become more valuable.

Stocks are shares of companies, and their value is based entirely on the profitability of said company. In general, for the majority of publicly traded companies, they will trend positive over a long enough term. In the hundred or more years the stock market has been in existence in the United States, it has regressed to the mean of anywhere between 3 and 7 percent appreciation over a long enough period of time, in spite of short-term failings. Because of this, most companies also clearly can be seen to trend upwards over a long period of time. Because of this, stocks are good long-term, passive investments.

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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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