What would happen if the stock market failed to start?

Dear Friend,

If the stock market failed start for a few years, investors will be much better off both financially as well as health wise.

In fact, my guru Warren Buffett exactly used the words in your question. He said, “When You Make an Investment, Think that the Stock Market Is Going to be Closed for Five Years”.

To learn more of Buffett’s wisdom and to learn and practice for FREE, please visit my blog ‘Value Investing at Wealth Vidya

Note: This is a reproduction of the question I had answered on the website ‘Quora’.

I have US$50,000 now. I want to invest in US stocks for 20 years. Which stocks will you recommend? How much would I have at that time?

Friend, I am glad that you are thinking of a 20 year investment horizon. None can suggest you a single stock that you can invest and forget about for 20 years. Of course there are stock of great corporations but at what price are they available in the market? If you buy the stock of an excellent company at a very high price, you as an investor will not benefit. Under the circumstances, You have two options before you, as follows:

1. You may learn ‘Value Investing’, in which case please buy the best book, ‘The Intelligent Investor’ by Benjamin Graham and get started immediately. You may visit my blog atValue Investing.

2. If you do not want to spend a lot of time on investing, you may simply invest your corpus in an ‘Exchange Traded Fund (ETF)’ that mirrors a popular index like DAX, Dow Jones, etcetera or any good mutual fund.

Now the most important aspect of investing begins. You simply forget about the investment till 20 years.

Following table shows what your investment could be if it is able to generate a compounded annual growth rate (CAGR) of 15% per annum or 1.25% per month, which is very much possible.

Future Value of Investment

I have assumed an annual inflation rate of 9.96%, which is probable in India, where I live, but in the US it is very unlikely. So, if the inflation rate is 2% per annum, you will end up with a net future value of US$ 911,208, quite a significant sum.