The stock market should grow faster than GDP in the long run. Three different simple arguments for this:
This falls out of the commonly-used Ramsey model. Specifically, because people discount the future, they will demand that their investments give better return than the general economy.
Corporate earnings should grow at the same rate as GDP, and stock price should grow at the same rate as earnings. But stock investors also earn dividends, so your total return should exceed GDP in the long run. (The reason this works is because in aggregate, investors spend the dividends rather than re-investing them.)
Stock returns are more volatile than economic growth, so they should pay a risk premium even if they don’t have a higher risk-adjusted return.
The stock market should grow faster than GDP in the long run. Three different simple arguments for this:
This falls out of the commonly-used Ramsey model. Specifically, because people discount the future, they will demand that their investments give better return than the general economy.
Corporate earnings should grow at the same rate as GDP, and stock price should grow at the same rate as earnings. But stock investors also earn dividends, so your total return should exceed GDP in the long run. (The reason this works is because in aggregate, investors spend the dividends rather than re-investing them.)
Stock returns are more volatile than economic growth, so they should pay a risk premium even if they don’t have a higher risk-adjusted return.