The share market is seen by a lot of people as a risky and dangerous place to put money.
Risk and volatility are two different things. Shares are volatile, they can go up or down 2% in a day, which is a whole year's worth of interest from a bank. There is a danger that in any one month or year the share market could be down.
The key fact to remember is that the share market is a long-term investment strategy as a whole. Property investors plan to hold an investment property for many years, perhaps decades. The same approach should be taken with shares.
Commonwealth Bank of Australia (ASX: CBA) is our biggest business in Australia, it was also one of the hardest hit in the GFC. If a person invested at the peak pre-GFC share price of $60.94 then they would have had a rough two years after that. However, if they remained patient and remembered that the share market is a long-term game, they would be sitting on share price growth of 31% today plus all the dividends.
You can do a similar comparison with many other shares and a lot of index funds as well.
The general long-term share market return for Australian and American shares has been an average of 10% a year over the decades, which doesn't include Australian franking credits.
An average of 10% doesn't mean it returns 10% every year. It means that it could be 20% one year, 0% the next year, 5% in another year and 15% in another year. Investors have to be patient and ride through the lows to experience the true long-term growth.
You can capture this growth through index funds like BETANASDAQ ETF UNITS (ASX: NDQ), fund managers like WAM Microcap Limited (ASX: WMI) or quality shares like Challenger Ltd (ASX: CGF) and Ramsay Health Care Limited (ASX: RHC).
Foolish takeaway
I think shares are the best way to generate wealth, particularly because you don't need to take on any debt to do so.
