Equities are superior long-term investments

Zoomer | August 1st, 1998

Equity ownership allows investors to participate in corporate success. As part owner of a company, investors benefit from the growth in value of the corporation, as management achieves greater profitability and as profits are either reinvested in the business or paid out as dividends. Studies show us that in the long-term, returns on equity investments have far outpaced those of traditional fixed income vehicles such as treasury bills or government of Canada bonds.

  • Stock markets experience their ups and downs over time. But despite periods of turmoil and volatfiity – whether caused by recession, inflation, political uncertainty, war or changes in interest rates – they have kept moving on to new highs.

  • While there is a place for fixed income investments in virtually all well-designed portfolios, it is equities that provide superior capital appreciation potential over the longer term.

  • Equities have outperformed ever other class of financial assets oyer almost every long-term period that one would care to measure regardless of the starting year; the only exceptions coming sin the early 1980s when return on bonds benefited from the abnormally higinterest rates that prevailed in that decade.

A Long-Term Strategy Proves Most Effective:

  • Time moderates the impact of short-term fluctuations in the stock market. In the past, equities have shown resilience, rising to successive new heights after weathering all kinds of uncertainties and adverse economic conditions.

  • Diversification reduces the inherent risk in owning one or two stocks. This essential requirement for successful investing can be achieved by spreading holdings geographically, as well as across different security types, sectors and industries _ and also by investing in an appropriate number of individually selected securities.

  • Stocks can offset the ravages of inflation which, although quiescent for now, remains a longer-term threat.

  • The reinvestment of dividends, often possible through Dividend Reinvestment Plans (DRIPs), can also significantly boost the total retums on successful equity investments the long-term.

  • For investors taking a conservative, long term buy-and-hold investment strategy, stocks have proved to be a superior way to preserve and create wealth. Talk to a Financial Advisor to determine if equities are suitable for your investment portfolio.

    • This information is excerpted from Merrill Lynch’s Special Reports “Retirement Savings Guide”, “Strategies for Dealing With an Early Retirement Package” and “RRSP Contribution Checklist”. For a complete copy of these reports, please contact your Merrill Lynch Financial Advisor.

    The information contained herein was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Merrill Lynch Canada Inc. is not a tax advisor and we recommend that clients seek independent advice on tax related matters.

    Financial Tips courtesy of Merrill Lynch Canada Inc.