- Over long term (10+ years), equities offer a chance to beat inflation handily (unless purchased near the peak of unprecedented market bubbles like Japanese stocks in 1989 or US stocks in early 2000)
- Over long term, equities offer a chance to profit from a company's earnings growth (as before exceptions apply) and if purchased as a broad index they offer a chance to ride the GDP growth of a country
The is one more advantage of equities worth discussing:
Tax Advantage: For equities taxes can arise from tax on dividends or capital gains tax (incurred only at the time of selling the equities at a higher price). Most countries tax dividends at a lower rate. In US its either 5% or 15% depending on ones tax bracket. In India investors pay no taxes on dividends. Even capital gains are taxed favorably. Capital gains can be either short-term (when sold within 1 year) or long-term (if sold after 1 year). Short term capital gains are treated as ordinary income in US & are charged at 10% in India. Long term capital gains are either 5% or 15% in US & none in India. So while an investor is riding the companies earnings growth he/she pays very little taxes if the stocks are held for a long time in a taxable account. This can boost the returns significantly over long periods of time due to the effect of compounding.
