Finance: How To Become A Micro-Capitalist

(Drivebycuriosity) - It seems that capitalism is very unpopular these days. This is disappointing considering the fact that capitalism brought enormous wealth even to average people. Living standard is world wide much higher than 100 years ago (realclearmarkets  mises.org). The capitalism opponents also ignore that the socialist alternatives all have failed. What happened with the Sovjet Union, Cuba, Venezuela and other socialist states? Maybe people think that the capitalists are just the others, the rich, the one percent. But everyone can be a capitalist, at least a micro-capitalist by investing into the stock market.

Everybody should save some money for the future, especially for retirement. The stock market is the most rewarding way to do that. The graphic below shows that the US stock market, represented by the S&P500, grew on average annually 6.7% since 1950, even that dividends are not included (annually 2-3%). Investors who reinvested their dividends got an even higher return. The University New York calculated that since 1928 the US stock market (S&P 500) created an average return of about 10% p.a (stock market gains plus dividends reinvested nyu.edu/ investopedia). So an investment into the stock market doubled its value every eight years, thanks to the interest compound effect. That makes 4-times after 16 years and 8-times after 24 years. Even a small investment can grow into a fortune over decades, good for retirement.

Investing into the stock market is very easy. You can buy the US stock market, represented by the S&P 500 index, in one piece by purchasing index funds or ETFs (Exchange Traded Funds) on the S&P 500. These funds have very low costs because they don`t need a fund manager, they don´t have research and they don´t speculate with their customer´s money. They take their expenses from their portfolios so their returns (gains & dividends) are only marginally below the return of the S&P 500 (index-funds).

These are three major S&P 500 ETFs: Vanguard S&P 500 ETF (Symbol VOO),  iShares Core S&P 500 ETF (Symbol IVV) & SPDR S&P 500 ETF Trust (Symbol  SPY). You can buy them like stocks and easily track them by their symbols.

I think that the stock market will continue climbing in the future and will reward investors who are patient and have a long term horizon:

1. Company profits will continue their solid growth. They restructured during the recessions of the years 2001/02 and in 2008 and reduced costs significantly in order to survive. Now they are much fitter and more efficient than before. I believe that this learning process will continue and will translate into a long term trend of rising company profits.

2. We are experiencing a new industrial revolution.  Advances in Internet, artificial intelligence (AI), mobile computing, 3-d-printing, robotics, nano- & biotechnology and other technologies are reducing costs, raising efficiency and creating new markets. These trends are fueling the growth of company earnings, the engine of the stock market.

3. We also are having solid tailwinds from the emerging markets which are even getting stronger. The catching-up process in China, India, Indonesia, Philippines and a lot other countries translates into high growth in large parts of the global economy that creates continuously rising revenues & profits for global companies like Starbucks, IBM, Caterpillar, Apple and other members of the S&P 500.

Welcome to the club!