A grandfather was recounting an amusing moment with his young granddaughter. They were getting into a minivan and, as the granddaughter inserted her favourite DVD; she asked granddad what sort of DVDs he watched in the car when he was six years old.
When he told the youngster that there were no DVDs, certainly no cars capable of playing them, and television had yet to be invented when he was six - he was met with a simple stare of incomprehension. Then the six year old went back to selecting her favourite scene on the remote control.
I relate this story because it's almost impossible for us to grasp the enormous progress that mankind has made over the past 50 years. The diseases that threatened children and adults alike 50 years ago have mostly been wiped out in the developed world. We have technology at our finger tips that, even 20 years ago, would have had NASA in a swoon.
It's also almost impossible to imagine the wealth creation that has occurred in the stock markets over the last 50 years. To give an example, the S&P 500 stock index, on October 1st 1959, stood at 59.89 points. As I write this column (October 6, 2011 the S&P 500 stands at 1147 points). That's a pretty good run, but it doesn't include dividends. If an investor were to reinvest the dividends paid out by the stocks in the index, the wealth creation would be a multiple of the 17 fold increase in the index.
Today there is a lot of pessimism. We are just starting to work our way out the other side of one of the worst bear markets in history. Comparisons to the great depression abound and, implicit in the fear and the pessimism that rules the day, is the notion that there will be no further progress. We have had the good times, now comes the permanent hangover.
Like most hangovers, they rarely seem to end quickly enough. But the markets and progress will march on. The two are tied together through the economy, which has also grown and will continue to grow in the face of relentless progress.
In the modern age, every generation lives longer than the previous generation. It was only a hundred years ago that you were lucky to make it past 50. We tend presume that our experience in the future will be much as it is today. It's human nature to extrapolate whatever is happening today into the future. But as the little girl at the start of this story shows us, progress creeps up on us and things that were once impossible become as routine as morning coffee.
If you can remember the leap from no television to playing your favourite DVD in the back seat, it's not hard to conclude that a lot of our problems to day will be solved by innovation we have yet to experience. Innovation will spark growth, growth reflects in the economy and the economy moves the stock market. It is not about if this will all happen - it's merely a question of when.
What happens in the next few years to capital markets is anybody's guess. But portfolios are usually built to fund long term liabilities such as retirement. As both progress and the S&P 500 tell us, growth is inevitable. In spite of recent experience and the uncertainty of today - stocks remain one of the best possible assets to fund the expenses of a long lifetime.
Alan MacDonald an Investment Advisor with Richardson GMP Limited, helps investors with over $500,000 of assets make smart decisions about money. Alan is the co-author of "The Copperjar System, Your Blueprint for Financial Fitness" available on Amazon.
For more information please visit www.alanmacdonald.ca or email Alan at Alan.Macdonald@RichardsonGMP.com.
All material by Alan MacDonald, Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.
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