If you're reading this, then you've probably already heard the advice. Nevertheless, it bears repeating now: Stocks should be seen as multi-year investments. If your intended holding period is measured in months, weeks, or even days, then your risks outweigh your rewards.
Few stocks make this point any better than shares of brokerage firm Charles Schwab (SCHW 0.13%). Although it's had plenty of ups and downs over the course of the past couple of decades -- and at times underperformed the S&P 500 -- the stock has soundly rewarded its long-term investors.
Schwab stock's gains just reflect company growth
On the off-chance you're not familiar, Charles Schwab is one of the country's largest brokerage outfits. It boasts more than $8 trillion worth of assets under management spread across 34.4 million accounts as of June of this year, plus another 2.4 million corporate retirement plan participants. Nearly $1 trillion of those assets are in the form of its own proprietary mutual funds and exchange-traded funds.
It wasn't always that big. Indeed, 20 years ago it was nowhere near as big, with roughly $1 trillion worth of assets under its management umbrella. It's added the rest of its size since then the hard way -- earning it with more, better, and cheaper services.
Shareholders have reaped a sizable reward for being patient too. A $1,000 investment in Schwab stock back in August of 2003 would be worth about $6,320 today. That's a market-beating gain of more than 530%.
The stock's decent dividend payouts in the meantime would increase that overall gain even more, particularly if you reinvested those payments in more shares of the company itself.
And no, there's no reason to believe the stock's next 20 years won't look a lot like the past 20 years have.
There's an equally important takeaway for investors interested in stepping into a position in Charles Schwab following this year's big pullback from the stock, however.
Why Charles Schwab remains a long-term winner
Some stocks have performed better than Charles Schwab, of course, although the average stock hasn't. What makes this company and its shares markedly and persistently stronger than most?
One of these keys is the nature of the money business itself.
While the world no longer needs camera film, VCRs are mostly a thing of the past, and newspaper circulation continues to dwindle, as long as there's money, people will seek out ways to store and grow it. Owning equities remains the top means of outgrowing the impact of inflation. Barring the unlikely advent of a moneyless utopian society between now and then, that's not going to change by year 2043, 2063, or even 2143.
Another key driver of Charles Schwab's continued success is the flexible, adaptable nature of the company in a business that's in perpetual demand.
Compare it to the relatively simple energy business. The prices of natural gas and crude oil rise and fall, pushed and pulled by ever-changing supply and demand. Oil companies have little immediate control of most of those factors, though. Their only means of steering their own fate is ramping up or dialing back their production, but even that's a time-consuming process.
Meanwhile, they're all competing with oil and gas companies doing the exact same two basic things with the exact same commodity. Those are, pulling crude out of the ground and turning it into usable fuel. Oil and gas companies enjoy less say over their own success than many investors might care to believe.
Financial outfits like Charles Schwab don't face this same sort of limitation. They can add or alter services as needed. For instance, Schwab stopped charging commissions on nearly all stock trades back in 2019, mirroring moves made by some of its competitors. In a similar vein, although it was started as a company that caters to self-directed investors, Schwab now supports and even promotes third-party advisors that manage its clients' money for them; nearly 15,000 registered investment advisors use Schwab as their custodian. It wasn't always in the propriety fund business, either.
The point is, although not all businesses can, Schwab can -- and does -- evolve as is merited in a business without a looming end.
Then there's the X-factor that defies quantification or tangible, identifiable change. That is, this company's management, its board of directors, and even shareholders themselves have a history of demonstrating they know how important it is to pass their proverbial torches to the right people. Ask longtime General Electric shareholders about the impact of not doing so.
Take the hint
As the old adage goes, past performance doesn't guarantee future results. There's no outright assurance Charles Schwab stock can continue moving forward at the same pace it's been moving since 2003.
Be realistic, though. The need for people to save money and grow wealth isn't going to fade away anytime soon, if ever. Schwab's always-solid management teams have proven over and over again that the company can overcome the economy's occasional turbulence. The stock's long-term performance underscores this idea.
