“Don’t invest in stocks. It’s a sure-shot way to lose money.”

“I have never come across anyone making money in the stock market.”

“Buying stocks is like gambling. You’ll never make money.”

These were the statements I used to hear numerous times growing up. Our childhood dinner ritual was to watch the news channel while eating. Towards the end of the news, there was a quick summary of the stock market. I had no clue what it meant. However, some words got stuck in my mind — “Market crash, recession, bad economy, etc.” 

After hearing all the negativity about the market, I convinced myself that stocks were bad and the stock market was the worst place to make money. I had decided then I would stay away from investing in the stock market. Even when I watched stock market news during my early 20s, I still used to hear terms like “market crashed today”, and “the Dow Jones is down by 300 points”. These made my decision to not invest in the stock market even stronger.

My Inflection Point

Things were going on smoothly — I finished my graduation, got a good job, and started earning money. Then came the question — “what to do with the income?”. My friends around me were buying individual stocks. But, I felt like it was a gamble. I started looking for answers regarding where to invest my money. My opinion about the stock market changed completely once I came across the book “Stocks for the Long Run”. 

The book “Stocks for the long run” is considered to be one of the best investment books of all time.

In this book, the author looked at the returns for multiple asset classes like stocks, bonds, bills, gold, and the US dollar for a long period of time (210 years).

What the author did was – he looked at how much 1$ invested in 1802 in different asset classes would be worth in 2012 (a span of 210 years).

Let’s play a small guessing game. Can you guess how much $1 invested in stocks in 1802 would be worth in 2012? 

In other words, how much do you think a $1 investment in stocks would turn into 210 years later?

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$100? 

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No.

$1000? 

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No.

$10,000? 

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No.

$100,000?

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No.

$1 Million? 

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No.

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.

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.

I was mind blown to see the result. A $1 investment would become:

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$13.5 million

What??????

Yes. You saw it right. It’s not a typo. $1 would become $13.5 million.

A $1 invested in stocks in 1802 would have accumulated to almost $13.5 million by the end of 2012 (not inflation-adjusted)!!!!

I couldn’t believe it. I kept on reading.

For all the geeks out there, these are total nominal returns invested in a capitalization-weighted portfolio with dividends reinvested and without adjusting for inflation. Don’t worry if you’re unable to follow these terms, I will explain them in detail in future articles, but keep reading.

One of the other investments my parents and relatives constantly talked about was ‘Gold’. Growing up, my neighbors and relatives used to talk a lot about their investment in gold. I thought at least gold returns should at least come closer to that of stocks.

Here’s one more guessing game (I promise this is the last one!) — can you guess how much $1 invested in gold in 1802 would be worth by the end of 2012?

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$100?

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No.

$1000?

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No.

$10,000?

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.

No.

$100,000?

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No.

A 1$ investment in gold would become —

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$86.40.

Again, it’s not a typo. You might be thinking “Just $86.40, that’s it?”. Unfortunately, yes. It is no way closer to stocks.

When everyone talked about their investment in ‘gold’ during my childhood, I believed that gold was a superior investment. I was mind-blown that it doesn’t even come remotely closer to the stock returns. 

Here is the chart of how much a $1 investment in 1802 in stocks, bonds, bills, gold, and US dollar would be worth by the end of 2012 (taken from the book “Stocks for the Long Run“):

Image retrieved from the book “Stocks for the Long Run”, 5th edition, Page 77

A picture is worth a thousand words and the chart above shows how powerful the stock investing is.

From the above chart, it can be clearly seen that over the last two centuries the stocks dominated all other assets. Not even a single asset class came remotely closer to the stocks. In the author’s own words:

“No one has made money in the long run from betting against stocks or the future growth of our [American] economy.”

— Jeremy Siegel, Stocks for the long run

Here is a quick summary of the above chart:

asset$1 Investment would becomeAnnual Return
Stocks$13.48 million8.1%
Bonds$33,9225.1%
Bills$5,3794.2%
Gold$86.402.1%
US Dollar$19.111.4%

Stocks are the superior investment compared to any other asset classes. If you’re under the impression that people would lose money in the market or gold is the best investment ever, it is time to wake up. Do the research.

You don’t have to be a market genius to start building wealth in the stock market. I’m not recommending to buy and sell individual stocks. Day trading is risky and is considered gambling. But, buying a group of stocks (index funds) and holding it for the long term is the best wealth building tool.

I later came to know that the media only tends to make a big deal out of the stock market when it crashes, like it did in 2000, 2008, and 2020! 

Key Takeaway:

Over the last two centuries, stocks dominated all other asset classes. The book “Stocks for the Long Run” concludes that (1) the total return on stocks dominates all other asset classes and (2) while stocks are risky in the short run, they are less risky in the long run.

Invest in the stock market. Read about it. Don’t miss out on the greatest wealth-building tool of all time!

Click here to check my investment philosophy.

Recommended reading:

1. Stocks for the Long Run by Jeremy Siegel, 5th edition (Chapter 5)