Are stocks really worth it? A practical guide

Are stocks really worth it? This in-depth guide evaluates publicly traded equities: what they are, long-term performance versus other assets, risks, strategies, taxes and practical steps to start. ...

2025-12-25 16:00:00

By Crypto Trailblazer

Article rating

4.7

116 ratings

Bitget offers a variety of ways to buy or sell popular cryptocurrencies. Buy now!

A welcome pack worth 6200 USDT for new users! Sign up now!

Are stocks really worth it?

Are stocks really worth it? If you want a concise answer up front: for many long-term investors, publicly traded stocks have historically offered higher real returns than bonds or cash and meaningful inflation protection over multi‑decade horizons — but they come with volatility, drawdowns, and important behavioral and tax considerations. This article explains what equities are, summarizes long‑run evidence, lists advantages and risks, and gives practical, beginner‑friendly steps to decide if stocks belong in your portfolio.

Note: This guide focuses on publicly traded equities (U.S. and major global markets) unless stated otherwise.

Definition and scope

What do we mean by "stocks" (equities)?

Stocks (equities) represent ownership claims in companies. Holders of common shares typically vote on corporate matters and sit last in the capital structure if a firm fails. Preferred shares have priority on dividends and claims but usually limited voting rights.
Public equities are shares listed on regulated exchanges and traded openly; private equities are stakes in non‑listed companies and require different access and time horizons.

This article treats publicly traded equities — e.g., U.S. large‑cap stocks, smaller caps, and broad global equity indices — as the primary subject. When we use "stocks" below we mean publicly traded common (and occasionally preferred) shares, unless specified otherwise.

Historical performance and empirical evidence

When investors ask "are stocks really worth it?" they’re usually asking whether stocks justify their risk with higher returns over time. Long‑run datasets and academic studies are the core evidence here.

Broad historical datasets (Dimson, Marsh & Staunton; Ibbotson; and data from major benchmarks such as the S&P 500) show that equities have delivered materially higher average annual returns than government bonds and cash over multi‑decade periods. For example, U.S. large‑cap equities have historically produced roughly high single‑digit to low double‑digit nominal returns annually over the 20th and 21st centuries, with real (inflation‑adjusted) returns commonly estimated in the mid‑to‑high single digits in many long windows. Past performance is not a guarantee of future results.
Major long‑run studies include the Global Investment Returns Yearbook (Dimson, Marsh & Staunton), which reports century‑long equity returns across countries, and historical S&P 500 series maintained by financial researchers and index providers.

As of January 2026, according to recent reporting and market discussion, investors are also weighing structural shifts — notably AI and semiconductor demand — when valuing specific stocks and sectors. For example, industry coverage in early 2026 highlighted accelerated AI deployment and semiconductor capex as drivers for cyclical and secular returns in related equities (see References).

Long‑term real returns and inflation protection

Over multi‑decade horizons, equities have generally outpaced inflation, preserving and growing purchasing power. This is one of the main reasons equities are a core recommendation for long horizons like retirement saving.
The degree of protection depends on the country, time period, and which equities are held. U.S. large caps have often been a robust source of real returns, but periods of high inflation or long market stagnation can erode real gains temporarily.
No asset is perfectly inflation‑proof. In very high inflation regimes or during prolonged recessions, equities can underperform real assets like certain real estate or inflation‑linked bonds. Still, equities’ long‑term capacity to grow corporate earnings and dividends has historically helped them beat inflation on average.

Volatility, drawdowns and recovery patterns

Equities are volatile: year‑to‑year returns vary widely. Large drawdowns (declines from a previous peak) are frequent — 10%, 20% and larger pullbacks occur regularly.
Historical data show the market typically recovers from major drawdowns but recovery timelines vary. For example, a 50% market decline can take several years to fully reverse; more moderate declines often recover sooner.
Recovery depends on valuations, earnings growth and macro factors. The key point for investors is that longer holding periods greatly increase the probability of positive real returns despite interim volatility.

Advantages of investing in stocks

Stocks offer several practical benefits that explain their central role in many portfolios.

Capital appreciation potential: equities give exposure to company growth and innovation.
Dividend income: many companies pay dividends that can contribute to income and long‑run return when reinvested.
Liquidity: major publicly traded stocks and broad ETFs trade continuously and are easy to buy or sell at market prices.
Accessibility: modern brokerages and products make equities accessible to retail investors.
Diversification potential: equities across sectors, caps and geographies help spread risk.
Long‑term compounding: equities have strong potential for compounding total returns when dividends are reinvested.

Compounding and dividends

Reinvested dividends materially increase long‑term equity returns. Studies that decompose total stock market returns often show dividends (and reinvestment) account for a substantial share of cumulative performance over multi‑decade periods. Compounding returns — where gains generate further gains — is one of equities’ strongest advantages for patient investors.

Accessibility and low barriers to entry

Today, retail investors can access diversified equity exposure through low‑cost index funds and ETFs, fractional shares, and user‑friendly broker platforms. This reduces minimum capital needed to start and lowers per‑trade costs.
For crypto or Web3 exposure, Bitget offers custodial and wallet solutions (for web3 assets) and for spot and derivatives trading Bitget provides an exchange environment — investors should evaluate product fit and risk before engaging.

Risks and disadvantages

Stocks are not risk‑free. Key risks include:

Market risk (price volatility) — prices can fall sharply and unpredictably.
Company‑specific risk — any single firm can fail or lose value due to business problems.
Loss of principal — investors can lose much or all of invested capital in extreme cases.
Sequence‑of‑returns risk — retirees drawing income can suffer if withdrawals coincide with market drops.
Behavioral risk — fear or greed can lead to selling at the worst time or chasing hot sectors.

Bankruptcy and capital loss

In bankruptcy, creditors and secured lenders are paid first, then unsecured creditors, followed by preferred shareholders; common shareholders are last. Common shareholders can be wiped out entirely.
This capital‑structure reality explains the risk of investing in single companies without diversification.

Market timing and behavioral pitfalls

Attempting to time markets — selling before falls and buying back before recoveries — is difficult and often reduces returns. Missing the market’s best days historically has a large negative impact on long‑term performance.
Common biases include recency bias (over‑weighting recent events), loss aversion (overreacting to losses), and herding (following the crowd). Recognizing these tendencies helps avoid costly mistakes.

When stocks are “worth it” — investor considerations

Deciding whether equities are "worth it" depends on individual circumstances.

Key factors:

Investment horizon: longer horizons favor higher equity allocations.
Risk tolerance: comfortable ride through volatility is needed for meaningful equity exposure.
Financial goals: retirement accumulation, growth objectives, or short‑term saving require different mixes.
Liquidity needs: immediate cash needs argue for less equity exposure.
Existing portfolio: equities should be considered within total asset allocation.

Time horizon

A longer time horizon increases the chance equities reward investors for their risk. Historically, 10+ year horizons have smoothed out many intermediate declines, but there are no guarantees for any fixed period.

Risk tolerance and capacity

Distinguish psychological tolerance (how you feel during drops) from financial capacity (ability to absorb losses without selling). Both matter: an investor who panics and sells after a 30% drop effectively realizes losses, undermining the equity case.

Investment approaches and strategies

There are many valid ways to invest in stocks; the main approaches are:

Passive indexing / buy‑and‑hold: low‑cost broad index funds or ETFs that track market indices.
Active management / stock‑picking: choosing individual stocks or actively managed funds aiming to outperform benchmarks.
Dollar‑cost averaging: investing fixed amounts regularly to smooth entry prices.
Style choices: value vs. growth, dividend income strategies, sector tilts, and factor investing.

Buy‑and‑hold / passive indexing

Evidence supports passive indexing for most investors: lower costs, broad diversification, and the difficulty of consistently beating markets net of fees.
Staying invested avoids missing the market’s best days; missing a handful of high‑return sessions can erase years of outperformance.

Active trading and value/active selection

Active trading can generate higher returns for skilled managers, but it incurs greater costs (commissions, taxes, spreads) and higher risk of underperformance for most retail traders.
Value and growth strategies have cyclical performance differences; diversifying across styles or using multi‑factor strategies can mitigate timing risk.

Role of diversification and portfolio construction

Equities are one building block in a broader asset allocation that may include bonds, cash and alternatives. Diversification reduces idiosyncratic risk by spreading exposure across:

Sectors (technology, healthcare, financials, etc.).
Market capitalizations (large, mid, small cap).
Geographies (domestic vs. international emerging markets).

ETFs and mutual funds are practical tools to achieve diversification with low per‑trade complexity.

Risk management tools (rebalancing, hedging)

Periodic rebalancing (e.g., annually) locks in gains from appreciated assets and buys undervalued ones, enforcing discipline.
Hedging (options, inverse funds) can reduce downside but increases complexity and cost; suitable for sophisticated investors.
Maintaining an emergency cash buffer reduces the need to sell equities in downturns.

Practical considerations: costs, taxes and account types

Net returns depend on costs and taxes as much as gross market returns.

Trading fees and expense ratios reduce net performance. Low‑cost index funds and ETFs typically have expense ratios far below active funds.
Taxes on dividends and capital gains vary by jurisdiction. Long‑term capital gains rates and qualified dividend tax treatment often favor holding investments longer.
Tax‑advantaged accounts (401(k), IRA, Roth in the U.S.) can materially improve after‑tax outcomes for retirement saving.

Fees and expense ratios

Even small differences in annual fees compound over decades. For long horizons, choosing funds with lower expense ratios can add meaningful percentage points to final wealth.

Tax efficiency and account selection

Where possible, place tax‑inefficient assets (taxable interest, REITs) in tax‑advantaged accounts and tax‑efficient assets (taxable‑rate equities, broad index funds) in taxable accounts.
Use tax‑loss harvesting in taxable accounts to offset gains when appropriate, subject to local rules.

Alternatives and complements to stocks

Compare equities with other assets:

Bonds: lower volatility, predictable income, useful for capital preservation and liquidity.
Cash: preserves nominal principal and liquidity but usually loses purchasing power to inflation.
Real estate: can provide income and inflation protection but varies by liquidity and management burden.
Alternatives (including cryptocurrencies): can provide diversification or higher return potential but often with higher volatility and different risk profiles.

When alternatives may be preferable

Short time horizons or imminent cash needs.
Very low risk tolerance.
Need for capital preservation (near‑term purchases, short‑term liabilities).

In these cases, higher bond or cash allocations (or stable investments) may be appropriate.

Common misconceptions and behavioural biases

Debunking a few myths:

"Stocks always go up": Not true in the short or even medium term. Historically positive long‑term outcomes are not guaranteed for all periods.
"You should time the market": Market timing most often reduces returns and increases costs.
"High recent returns guarantee near‑term gains": Past momentum can reverse; relying on short‑term performance is risky.

Behavioral biases — recency bias, loss aversion, herd behavior — drive many poor decisions. Awareness and rules‑based investing can mitigate these effects.

Who should invest in stocks and recommended allocations

General guidance (not individualized advice):

Younger investors with long time horizons often benefit from a higher equity allocation because they can ride out volatility and capture compounding growth.
Retirement investors typically allocate between equities and bonds depending on retirement timing, spending needs and risk tolerance.
Popular simple rules include age‑based rules (e.g., % equities ≈ 100 − age, adjusted for risk tolerance) and target‑date funds that automatically shift allocations over time.

Seek personalized advice from qualified financial professionals for tailored allocations.

Practical steps to get started

Use this checklist to begin:

Define goals and time horizon.
Build an emergency cash buffer (3–6 months expenses) before taking long equity risk.
Assess risk tolerance and capacity.
Choose the right account type (taxable vs. tax‑advantaged).
Start with broad diversified funds/ETFs or high‑quality individual stocks.
Set a contribution schedule (dollar‑cost averaging helps reduce entry‑timing risk).
Monitor and rebalance periodically; avoid knee‑jerk reactions to short‑term volatility.

If you use Web3 or crypto assets as a complement, consider secure wallet practices and prefer trusted custodial solutions like Bitget Wallet for managing keys and assets.

When stocks may not be worth it for a particular person

Stocks may be inappropriate when:

You have an imminent large cash need (within months to a few years).
You cannot tolerate short‑term losses mentally or financially.
You lack a basic emergency fund.
You hold an undiversified concentration in a single stock and lack the expertise to manage it.

In such cases, higher allocations to cash, short‑term bonds or other lower‑volatility instruments are reasonable.

References and empirical footnotes

Dimson, E., Marsh, P., & Staunton, M. — Global Investment Returns Yearbook (long‑run equity, bond and cash returns by country). (Check the latest edition for updated date ranges.)
Historical S&P 500 total return series (long‑term index performance; verify latest date when consulting data).
As of January 10, 2026, MarketWatch and related reporting highlighted debates about whether certain large public companies are primarily AI plays versus legacy businesses and how that affects equity valuations.
As of December 31, 2025, AFP reported on corporate and tech leader positions in AI infrastructure and investors’ differing interpretations of firm valuations.

Quantitative notes: verify specific figures (annualized return %, inflation adjustments) by consulting the latest datasets from the references above; historical ranges vary by sample period and country.

Practical takeaways — are stocks really worth it?

For many long‑term investors, yes: publicly traded stocks have historically rewarded patient investors with higher real returns than bonds and cash.
Stocks are not a short‑term safe haven. They require tolerance for volatility and a plan to avoid emotionally driven selling.
Costs, taxes, diversification, and account selection materially affect net outcomes.

If you’re deciding whether to add equity exposure: clarify your time horizon and goals, build a cash buffer, choose diversified low‑cost funds or a disciplined selection of stocks, and use tax‑efficient accounts when available.

Explore exchange and wallet services that fit your needs — Bitget provides exchange tools and Bitget Wallet for digital asset management — and consult qualified advisors for personalized guidance.

Footnote on recent market context (date‑stamped reporting)

As of January 10, 2026, press coverage described how advances in AI infrastructure, semiconductor demand and vertically integrated business models were influencing stock valuations and investor debate. Notable coverage contrasted companies seen as pure hardware or product plays with those investors argue represent broader platform or AI ecosystems. These market narratives are relevant to sector‑specific equity decisions but do not change the central long‑term trade‑off between equity risk and expected return.

Final guidance

If you’re still asking "are stocks really worth it?" — start small, prioritize diversification, and match equity exposure to your time horizon and risk tolerance. Use low‑cost, diversified funds to capture the historically superior long‑term returns of equities while minimizing single‑company risk. Monitor costs and taxes, and maintain discipline during downturns.

For more resources on accounts, trading tools and secure wallet options for digital assets, explore Bitget’s educational center and Bitget Wallet offerings.

References (select):

Dimson, E., Marsh, P., Staunton, M. — Global Investment Returns Yearbook (long‑run return study).
S&P 500 historical total return series (index provider data; check provider for date‑stamped series).
Market reporting and analysis on AI and market valuation debates (as of January 2026).
AFP reporting on corporate AI and infrastructure developments (as of December 2025).

(Reports and datasets cited above should be checked at source for the exact publication dates and numeric details before making decisions.)

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.