🔒 Ever imagined the Dow at 1 000 000? At this rate it will be there in 50 years – with insight from The Wall Street Journal

There are no guarantees, but the past is the best clue to the future, and the stock market has a long and consistent history. In his book “Stocks for the Long Run,” Jeremy Siegel showed that since 1802 equities have produced average annual returns of 6.5% to 7%, after inflation and including both price increases and dividends.

On a chart, a line representing the value of a stock-index investment inexorably rises. There are dips, but always recoveries. In no 20-year calendar period in the past century has the market produced a negative return, and only twice has it returned less than 5%. Making money in the stock market is easy. Why do we make it so hard?

Warren Buffett’s mentor, Benjamin Graham (1894-1976), had an answer. Graham was a polymath who learned to read six languages in high school and was offered teaching positions at Columbia in three departments: mathematics, philosophy and English. He instead chose Wall Street and taught at Columbia’s business school. Graham’s distillation was simple: “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

Graham worried that because the rate on a 10-year Treasury note had declined from an average of about 4% in the 1920s to 3% in the 1930s and 2.3% in 1949, when he wrote “The Intelligent Investor,” people had no choice but to buy equities and thus “expose themselves, willy-nilly to the temptations of the stock market.” These are the seductions of gambling: the belief that around every corner there’s a big payoff for those clever enough to foresee it. And continually buying and selling stocks verifies Pascal’s dictum that every problem stems “from man’s inability to sit quietly in a room.”

Graham’s solution to the temptations wasn’t sitting quietly but having discipline: a strict regimen of deep-value stocks, their low prices providing a “margin of safety” against disaster. No doubt there’s benefit to the strategy, but it requires careful research and analysis, and it probably won’t beat the averages. Unlike in Graham’s day, we now have an alternative: index funds available to small investors at rock-bottom fees (Fidelity, for example, charges 0.015% a year for its S&P 500 fund.)

The best strategy for long-term investors is so obvious that I blush to write it down: Buy market index funds, preferably by making monthly automatic investments, and then forget about it. Certainly, those with shorter horizons or with the means to make riskier bets for higher rewards can do as they please, but for nearly all Americans the rules of the road are manifest.

In 1999 Kevin Hassett and I published a book, “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.” We thought the market would reach that milestone much sooner than it did. I think we underestimated human psychology. People are exhilarated by the vagaries of stock prices, but they are, at the same time, scared to death of losing what they’ve accumulated. The equity risk premium may be too high for a rational person examining history and economics, but it is a constant fact of financial life. And that’s a good thing! The high returns to stocks are the reward you get for conquering your fears and your greed.

Mr. Glassman served as undersecretary of state for public diplomacy and public affairs (2008-09) and is a co-author of “Dow 36,000.”

Appeared in the November 3, 2021, print edition as ‘Get Ready For Dow One Million.’