Wealth growth requires a long-term perspective

Abstract：Stock market prices fluctuate rapidly, attracting many to short-term trading for quick wealth. However, most fail because capital markets, like any market, lead to average returns as everyone competes equally. This mirrors choosing the shortest checkout line, where all lines equalise over time, often with unexpected delays. Promises of high returns usually involve high risks, rare opportunities, or deception. Economists advocate long-term strategies like investing in broad market index funds to capture average returns. As Charles Wheelan notes, wealth grows over decades, not days. Get-rich-quick schemes defy economic principles, while rational wealth accumulation requires patience and adherence to market fundamentals.

Securities prices fluctuate much more rapidly than labor costs, enticing many with the prospect of making a quick fortune or even achieving overnight wealth through short-term trading. However, the harsh reality is that very few ever attain such heights.

Why is this? From an economic standpoint, the answer is straightforward. The capital market, like any other market, involves everyone holding the same resource: money. When everyone aims to maximize their returns, the inevitable outcome is that each person can only achieve average returns in the end.

Consider the scenario of selecting the shortest line at the supermarket checkout. When everyone adopts this strategy, the lengths of all lines eventually equalize. Sometimes, you might spot a line that appears significantly shorter than the others, but upon joining, you may discover an elderly lady with her grandson ahead of you, slowly paying for a cart full of groceries. Thus, no matter which line you choose, the waiting time tends to be similar.

Would you believe someone who approached you while you were in line, claiming they've found an exceptionally fast checkout line guaranteed to satisfy? Probably not, because you'd instinctively know such opportunities don't just fall into one's lap without reason.

The same logic applies to financial investing. When someone promises "extraordinarily high returns," the underlying truth typically falls into one of three scenarios: the investment carries an extremely high risk; the individual has indeed discovered a great opportunity that other savvy investors have missed, and out of immense kindness, wishes to share it with you; or, more commonly, the person is lying. Often, the reality is the latter.

Therefore, economists view pursuing average returns in the capital market as the most rational strategy for wealth accumulation, advocating for the purchase and long-term holding of broad market index funds. This approach fundamentally aims to capture the market's average gains, balancing out variations among individual stocks and across different years.

As Professor Charles Wheelan of Dartmouth College mentions in "Naked Economics": What will the Dow Jones close at tomorrow? I don't know. And next year? Still, I don't know. In 5 years? It might be higher than today, but I'm not certain. What about in 25 years? I'm almost sure it will be significantly higher than today.

Thus, we see that wealth growth necessitates a long-term outlook, not just in the labor market but in the capital market as well. Any wealth strategy must adhere to the fundamental laws of economics. And those enticing "get-rich-quick" schemes, under the scrutiny of economics, are merely illogical "outliers."