In the Long Run, Stocks Really Do Go Up

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In the long-term, stocks mostly go up. That single piece of advice has formed the core of many trillions of dollars of investment decisions. But it isn’t without detractors.

One of the counterarguments sometimes cited is Japan: The Nikkei 225 hit 30000 for the first time in three decades this week, but still hasn’t reached its 1989 zenith.

But that ignores the reality of reinvested dividends: Returns for most investors squirreling money away over a period of years are clearly positive.

If an investor had entered the market in December 1989, the very peak of the Japanese equity bubble, it may well have looked pretty bleak at times. For considerable periods over the past 32 years, an investor saving around 10,000 Japanese yen, the equivalent of about $95, per month would have been better off having kept it all in cash.

But right now, that stock investor would be sitting relatively pretty. A 10,000 Japanese yen investment in the MSCI Japan stock index each month since December 1989 would now be worth around 7.7 million yen—against around 4.4 million yen for the same money in a bank account offering a 1% interest rate.