Why Own Stocks? The Long-Run Case for Building Wealth

I'm Andy Temte and welcome to Money Lessons! Join me every Saturday morning for bite-sized lessons that are designed to improve financial literacy around the world. Today is July 25, 2026.

Last week, we widened the map to international stocks — why the rest of the world belongs in your portfolio, right alongside American companies. Today, we step back from the mechanics and ask the biggest question underneath all of it — why own stocks at all? That question is big enough that we'll take two weeks to answer it. This week, the case for owning stocks over a lifetime. Next week, the limits of that case.

Why Stocks Have Paid More

So, over long stretches of time, stocks have paid their owners more than bonds or cash. Not in every year — some years, stocks fall hard — but stretch the horizon to ten or twenty years, and stocks have come out ahead in the vast majority of periods.

These numbers come from a dataset that Professor Aswath Damodaran at New York University updates every year, going all the way back to 1928. Since then — nearly a hundred years — American stocks have returned about 10 percent a year on average, with dividends reinvested. Long-term government bonds have returned about 5 percent. And cash — money parked in short-term Treasury bills, the place with the fewest ups and downs — has returned about 3 percent.

Now, those figures are before we account for inflation. Inflation over that same stretch ran about 3 percent a year. So after inflation — your real return — stocks earned roughly 7 percent, bonds roughly 2 percent, and cash earned roughly nothing. Over the long run, holding cash has just barely kept pace with rising prices: it spared you the day-to-day swings, but after inflation it left your wealth roughly where it started.

That yearly difference is already large, and over decades it compounds into a vast one. One hundred dollars invested in stocks in 1928 would have grown to roughly 1.16 million dollars by the end of last year — while that same hundred dollars in government bonds grew to about $7,750, and in cash, to about $2,600. Same starting $100 dollars, wildly different endings.

The extra return that stock owners have earned — over and above bonds and cash, in exchange for bearing more risk — is the equity risk premium. That return is your compensation for taking on risk that is real: stock prices swing, companies fail, markets crash. You earn the premium precisely because you agreed to live with those ups and downs. The premium is compensation for real risk, not a guarantee. Over long horizons that advantage has been dependable. Over short ones it is not: in a single year — or even three or four — stocks can lose money, and sometimes they keep losing it for years at a time.

Compounding the Premium

What turned that hundred dollars invested in 1928 into more than a million was compounding. Compounding means earning returns not just on the money you put in, but on all the returns your money has already earned — so each year's gains go on to earn gains of their own.

Compounding is what turns the equity risk premium from a yearly advantage into a life-changing sum. Remember the example our late summer 2025 episodes on compounding — five dollars a day, the price of a fancy coffee, invested steadily in a broad stock fund at the market's long-run average. Over forty years, that five dollars a day grew to nearly a million dollars. And of that ending balance, only about $73,000 was money the saver set aside. Everything above that — more than $900,000 — came from compounding.

The equity risk premium and compounding work together: the premium gives stocks a higher average return than bonds or cash, and compounding multiplies that advantage over a lifetime. Neither works without the other, and neither works quickly. They reward the investor who buys, holds, and keeps the money invested for decades.

A New Door to Ownership

For generations in America, the main way ordinary families built wealth was by owning a home. For most middle-class households, the equity in their house — the part they own outright, free of the mortgage — is still the largest asset they have. Owning has been the path. But that path has narrowed. The typical existing home now sells for around $440,000 — an all-time high, and more than $80,000 higher than it was five years ago. And a home is a lumpy purchase: to buy one, you generally need a large pile of cash up front for the down payment. Even 10 percent down on a $440,000 house is roughly $44,000, in cash, before you can begin. Mortgage rates that sat near 3 percent a few years ago climbed above 7 percent, and now sit around six and a half — which raises the monthly cost on top of the down payment. For a lot of people — especially younger people just starting out — that first door to ownership has gotten very hard to push open.

But something has changed on the other side. Owning a piece of the stock market used to carry its own barriers — a commission on every trade, and the need to buy whole shares that could cost hundreds of dollars each. Both barriers have fallen. Commission-free trading and fractional shares — the ability to buy a sliver of a single share — mean you can become a part-owner of a basket of the world's companies for the price of that same five-dollar coffee. The down payment on ownership in stocks, in other words, has dropped from tens of thousands of dollars to a few dollars.

I want to be careful here, because this is not advice to give up on buying a home. A home is shelter you live in, and a mortgage is a form of forced saving that has served families well for a long time. This is about a door that has opened, not one that has closed. If the traditional path to ownership is out of reach for you right now, you are no longer shut out of ownership itself. You can start small — a few dollars at a time, invested in a diversified way and left to compound for years. That is how small sums become large ones: a little at a time, given room to grow.

The two kinds of ownership differ in another way, too. Buying a house is a large, infrequent, complicated transaction, and the buyer is often at an information disadvantage — a point we explored in our June 13th episode on information asymmetry. Buying a share of a public company works differently: the price is public, the same for everyone in the market at that moment, and the company is required by law to disclose its finances. That doesn't make stock investing risk-free or perfectly fair — but you don't have to out-negotiate a seller across a kitchen table to buy at a fair price.

What This Means for You

So what does all of this mean for you?

Over a lifetime, owning stocks has been the most reliable way ordinary people have built real wealth. Not by picking the one brilliant company, and not by trading in and out at the right moments — but by owning a broad slice of the market, adding to it steadily, and staying invested long enough for the equity risk premium and compounding to work together. Those long-run gains have gone to the patient owner, not the clever trader.

And the entry point has never been lower. You don't need tens of thousands of dollars, and you don't need to wait until you can buy a house. You need a little money, set aside regularly, and time. Ownership is no longer something you postpone until you're wealthy. For most people, it's how you get there.

If you are in your late teens or twenties, start now. Put a set amount into a diversified stock fund every month, automatically, whether the market is rising or falling, and keep at it. Time is the one ingredient you cannot buy later, and it is the ingredient you have the most of right now.

I meet people in their mid-thirties who feel priced out of a first home — who cannot pull together the down payment, and who are discouraged by it. Homes have grown more expensive; that part is real, and we just walked through it. But a steady investing habit begun at twenty could have grown, through the very equity risk premium and compounding we've described, into the down payment that feels impossible at thirty-five. Five dollars a day, invested early and left to compound, is how an ordinary person builds the lump sum a house requires. You cannot make up for those lost years with a burst of saving at the end — the market rewards the decades you give it, not the urgency you feel once you're behind. If you are young, the most valuable thing you own is time. Use it well.

Next week, we finish this series. The equity risk premium is real, but it is neither free nor guaranteed. Stocks fall, sometimes for years, and the hardest part of owning them isn't buying in — it's holding on through the bad stretches without selling. We'll look at why jumping in and out of the market tends to leave investors with lower returns, not higher ones, and why the biggest obstacle to capturing the long-run premium is very often your own behavior.

Until next week... Grace. Dignity. Compassion.