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Chapter 7. Equity Investments: Taking St... > Why Invest in the Stock Market?

Why Invest in the Stock Market?

As you ponder the different product choices available for your savings efforts, perhaps the most important element will be equity investments. Since 1927, the Standard and Poor's 500 has shown an average annual compounded return of 11.74 percent per year. To put that into perspective, a $1,000 investment in the S&P 500 75 years ago would now be worth over $4.1 million. I seriously doubt that I'll have to do too much work to convince you that equities need to be part of your financial future. For most people there is an allure to investing in the stock market that is a financial rite of passage. Table 7-1 summarizes the compound annual growth rate of a variety of investments as compiled and released by Ibbotson Associates.

Table 7-1. Compound Annual Growth Rates of Investments, 1925–2002
Investment TypeAnnual Compound Growth (%)
Small company stock12.1
Large company stock10.2
Long-term government bonds5.5
Treasury bills3.8
Inflation3.1



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