Past provides diagram of market's roller coaster ride

For a while it seemed easy. The value of most stocks increased almost daily during the 1990s, and everyone wanted to be in the stock market.

In the last 18 months, however, we've come back to reality. Sometimes the market has gone up, but mostly it has gone down.

This situation has left many people asking an important question, "Should I invest in the stock market for the future?"

No one knows what the stock market will do tomorrow, but looking at where we've been may give you a better idea of where we're likely to go.

Stock market performance

The S&P 500 is an index that represents the prices of 500 major stocks.

If you had invested $1 in the S&P 500 in 1980 and left it there until the end of 2000, you would have had $18.41. If you had invested $1 in Treasury bills instead of stocks for the same time period, you would have had only $3.61 (source: Ibbolson Associates).

Market adjustments

The economic boom of the 1990s may have spoiled us. We came to expect perennial 20 percent returns from our investments, and that's just not realistic.

Historically, economic booms are usually followed by a period of adjustment in the stock market.

The economy cools for a time, and stock performance slows down. The market then recovers gradually.

Why stocks perform well

When a company's earnings increase, its stock price will usually rise. When you buy a stock, you are betting that corporate earnings will increase. There is no guarantee this will happen, but history is on your side.

Corporate earnings in the United States, western Europe and Japan have increased much more often than they have decreased during the past 200 years, according to the U. S. Bureau of Economic Analysis. This has caused stock prices to rise most of the time.

Short term

In the short term, anything can happen. Recessions, wars, terrorism and other calamities can cause poor stock performance for a few days, months or even years. If the money you are investing today will be needed in one to five years, the stock market might not be the best choice for the majority of your portfolio.

Long term

In the long term, the stock market usually results in gains despite dips along the way.

It has overcome a host of temporary declines to post annual returns far better than what you could have achieved through most other investments.

However, there is no guarantee the stock market will perform this way in coming years. Past results are not a promise of future performance, and you should be suspicious of anyone who claims that their investments offer both high returns and a guarantee.

Investing in the stock market

That brings us back to our original question: Should you invest in the stock market for the future? Most professionals recommend that people have a portfolio including well-chosen stocks for long-term goals, such as retirement and college education, because of the market's long-term track record.

But, only you can answer that question for yourself.

A professional financial adviser can help you make these crucial decisions based on your current financial situation, financial goals and risk tolerance.