InvestorQ : Is it true that equities create genuine wealth over the long run?
Arti Chavan made post

Is it true that equities create genuine wealth over the long run?

Answer
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sarah Leo answered.
2 years ago


Let us start with an example. The BSE Sensex was at a level of 100 when it was launched in 1981. Over the last 37 years, the Sensex has moved up from 100 to over 38,000 (forget about the correction). That means; even if somebody had put Rs.100 in the Sensex in 1981 and forgotten about it, it would be worth Rs.38,000 today. That translates into a compounded annual growth rate (CAGR) of 17.5% per annum. We are not adding the dividend yield on the Sensex which has averaged around 1.5%, taking the overall CAGR returns on the Sensex to a whopping 19% per annum.

In a nutshell, equities have created more wealth; more than any other organized asset class. Here we are talking about investing in the index and forgetting about it. If you consider that there are smart stock pickers and fund managers who do specific stock selection and manage to better the index, then equities look a lot more attractive as a means of wealth creation. So what makes equities one of the best bets to create wealth in the long run?