If the market increases by 6-8% annually, how can someone in the future afford to buy even one stock if their income does not increase proportionally? Won’t stock prices increase 6-8% indefinitely prohibiting anyone from buying them? Also if the market crashes to correct the increases, how can anyone make a profit off long term investments without timing the market? I would like to invest in broad index funds but don’t quite understand how my money will increase if there is always the risk of a correction crash before I retire and take my money out of index funds. Thank you.
In: Economics
A lot of the growth in stocks is ACTUAL growth. Firms are producing real value through the application of labor and capital in the same way that you would produce real value if you chopped down some trees and used them to build a cabin. Suppose this true growth is 6% per year. There might be times when the market grows at 8% per year for reasons unrelated to true growth (e.g. bubbles), and that excess growth may be wiped out by a “correction” (such an annoying euphemism). That correction could even temporarily wipe out some of the true growth. But over the very long run, the market will even out and your investment will grow.
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