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Dow 20,000? Yes, says Charles Schwab

Renowned investor Charles Schwab said Tuesday the stock market is not a bubble but supported by a "very strong economy," with the Dow Jones Industrial Average poised to soar to 20,000 within the next year few years.

"It will eventually reach that point. It may not be next year, but you gotta believe that equities are things that grow. It's innovation. It's new stores, new ideas, new things. That's where you get the benefit of the great American growth story, is through equities," Schwab said on "Closing Bell." "And so it's just a matter of time."

The economy has been able to get stronger because of the Federal Reserve's success in pumping liquidity into the market, said Schwab, referring to the Fed's $85 billion in monthly bond purchases, which is credited with keeping interest rates low and making borrowing easier and equities more attractive.


Improved economic indicators, including a drop in the unemployment rate to 7 percent from 7.3 percent, will allow the Fed to begin dialing back the stimulus sometime in the New Year, Schwab said.

Schwab also suggested banning high-frequency trading, which he said adds little value to the market and erodes investor confidence.

He also joined the growing chorus that supports "indexing"—a mutual fund made up of a portfolio that tracks an index, such as the S&P 500—instead of buying individual stocks managed by a specific person. Index funds not only tend to outperform the market but allow investors to avoid fees commanded by a money manager, Schwab said.

Recently, both Pimco's Bill Gross and Vanguard founder Jack Bogle have appeared on "Closing Bell" to promote this "passive investing" strategy.

—By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm

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