The Equity Markets Are the Best Investment Avenue from the Long Term Perspective

The investors’ faith in the equity market was shaken after it plunged in November 2008. Buoyed by the high long term returns the people had invested heavily in the capital markets. It is true that the equity markets still offer good returns from the long term point of view (Credit Suisse, 2009).
For this, an investor must stay invested in the equities. In the past 109 years, the markets worldwide have given variable returns. There are certain events that cannot be predicted in advance and hence the direction of the markets in such situations cannot be forecasted as in the case of the recent global crisis when the worldwide markets bottomed out. This has depressed mood in the equity market thereby making the investors risk-averse. As the share prices are low buying equities may provide good returns in the short term. The current annualized equity risk premium of 3.5% shows that the equity returns compound faster and is likely to benefit the investors in the long run (Credit Suisse, 2009).
The markets have recovered over the previous levels with an improvement in the market demand. This has improved the revenue of the companies and making a positive impact on their earnings. It has been observed that the share price of a company falls when the markets expect the earnings of the company to decline whereas the markets react positively to improved earnings. From this, it can be inferred that the improved corporate earnings are likely to push up the markets making it an important investment avenue.
Till the middle of 2007, the companies were able to issue bonds at a spread of less than 100 bp beyond the risk-free rate. With the deterioration in the global market, the bond market closed towards the end of 2008. It reopened in 2009 focusing only on the cream companies (Water UK, 2009). To boost the economy the central banks of the various countries have kept the interest rates low. This has been done to stimulate new investment. The high rate of inflation together with the low-interest rates has lowered the real interest rate. This is also reflected in the returns earned on the bonds as the low rate of interest has taken the sheen from the bonds.