The stock market is unquestionably a long-term investment. Although there are always highs and lows, it has only risen in the long run and is likely to continue.
Why do share prices rise at all?
To understand why more growth is very likely, we must first understand the conditions that cause a share price to rise.
When people are willing to pay more for a share, share prices rise — in other words, when there is demand. As a result, if a large number of people want to buy a share at the same time, the share price will rise.
Recognising that the stock market is not a zero-sum game is critical. If one-half of all global stock prices rise, the other half may follow suit. If one share wins, the other does not have to lose.
A company’s value is reflected in its share price.
Companies strive for advancements in order to produce more cheaply, expand their market, and improve their products.
Most of them succeed, allowing them to pay higher dividends to their shareholders. As a result, dividends are most likely the primary driver of rising stock prices. Although not all companies pay dividends, any company could do so at any time. So everything revolves around potential dividends.
Economic development
There is only one trend in technological development: progress. We are now technically capable of so much more. For example, cell phones could only be used to make phone calls many years ago, and they were prohibitively expensive. Nowadays, a smartphone can do almost anything, and almost anyone can afford the entry-level models.
The companies that develop this technology have enabled this progress. They conduct research and development to increase profit, and increased profit, revenue, and market share make a company more valuable, so the share price rises.
Along with economic progress, social progress is noteworthy.
More countries in the world are economically free than in the past, and they can produce companies that can compete with the rest of the world.
Political conditions are naturally reflected in a share — there is a political risk premium on returns from companies based in unstable countries.
In particular, ETFs that reflect emerging markets provide excellent returns but also carry a higher risk. Such ETFs and funds hold shares in countries such as China and Brazil, where investors speculate on political developments.
More people are gaining access to the capital market.
Demand determines the courses. As a result, as demand increases, so do prices. Those who invest now can invest less in order for demand to rise. As a result, people all over the world are getting the chance to invest in the stock market.
We no longer have to buy securities on paper because of technological advances. Instead, we can easily purchase them using our smartphones. We can even purchase partial shares to invest in stocks such as Tesla without having to invest the entire $500.
As a result, the opportunities to invest in stocks are expanding. Furthermore, the global population is growing. Fortunately, global poverty is decreasing, making it possible for people from developing countries to invest internationally.
This has always been the case.
That something goes further because it has always been perceived as a risky assessment. Fortunately, it is not the only argument for a seemingly endlessly rising stock market — it demonstrates that consistent growth is possible across the entire stock market.
The fact that the stock market has only risen on average proves one thing above all: the points already mentioned apply.
- Our economy has been growing almost continuously, with only brief interruptions such as the economic crisis.
- Our needs and consumption have increased.
- The world’s population is increasing. More and more people can invest in the stock market.
The last point is noteworthy: there was no discernible trend of increased stock market investment in many countries. According to Statista, the United States reached a high of 65% of adults investing in the stock market. That was just before the financial crisis in 2007. The percentage of adults investing in the stock market will fall to 55% by 2020.
