how to invest money
The Stock Market For Beginners: Best Investment Returns and There’s Proof – Part 2
Here is Proof of Where the Greatest Gains and Maximum Safety Lie
Sydney Tremayne
In the previous article in this Stock Market for Beginners series we began to find out what the best and worst investment choices were.
So what is the best investment over time? The evidence is clear. Stocks lead the pack by a country mile over time. That does not suggest that everyone should immediately invest in stocks and believe instant wealth is bound to be theirs. You have to weigh your temperament.
It’s not always because company titans are so smart that we can make money from their shares. (We have seen them pull so many brainless stunts just in recent months. What person in touch with reality would have the gall to attend a Senate meeting to ask for a bailout – and travel in their own private jet? Sure, we don’t have our own jets, but if we had would we mere mortals have such a lack of commonsense?)
Little to do with the companies you choose
One reason we make money from shares has nothing to do with the companies themselves; inflation is the cause – and there is massive inflation ahead for the U.S. and some other countries that borrowed heavily to get through the recent recession. That money has to be paid back and one way to do this will be by printing more currency with less real value.
That is the reason the U.S. dollar is already plunging on world currency markets. The smart money knows what has to come. Forecasting this element of our future doesn’t take tea leaves or palmistry! A sinking dollar means it is less attractive to other countries. That makes imports more expensive – and that spells inflation. 1 + 2 = 3.
Inflation is a sure bet
Those who in the past have wanted to own U.S. dollars find gold and other currencies more appealing now. Inflation is not guesswork; it is a looming reality. But what about hard assets? Inflation will make them more costly to replace so the value of existing hard assets (factories, production machinery, raw materials) will rise in U.S. dollar terms and shrink in terms of most other currencies.
Shares in companies that control hard assets must also rise in value even if sales and production do not because in U.S. dollars their assets will be more valuable.
Like anything else, you need to understand the basic rules first. Beginner investing is not at all hard. It is so-called professionals who make it seem hard. Of course, we make things worse by going along with them! Consider this: if all of us realized how simple investing really is there would be no need for professionals with their mega pay checks.
Six simple strategies give almost certain results
There are about six simple no-guesses, logical, no-math, no-experience elements and you will learn them here over the next weeks.
But you don’t need to think it is just my opinion that stocks make the most profitable investment vehicle long term. The Federal Reserve Board has statistics going back to 1928. That’s the year prior to the Great Depression when the United States was enjoying what seems like one long happy pleasure trip.
Had you invested $100 in a 90-day treasury bill that year and reinvested that $100 and its return into a new treasury bill every 90 days, by the end of 2008 you would have amassed $1,964.64! This is assuming you had lived for the entire 80 years. Of course, inflation and taxation would have made your 80-year savings virtually without value today.
Relative stability of bonds has a price
So how about bonds, believed by many older investors to be more stable than stocks? To a degree, they are more stable, but at a price. Many bond investors have fixed incomes and rely on them for predictable interest payments. They hope to avoid risk.
But 1931, 1941, 1956, 1958, 1959, 1969, 1980, 1987, 1994 and 1999 among others were years when returns were negative two percent or more. Bond investors are typically timid, asking simply that their financial assets be preserved and provide reasonable interest. Most fail to realize they can be just as volatile as stocks. Gains of 20% or 30% have not been unusual during the past 80 years – along with losses of five- to more than eight percent.
How would bondholders invested in 10-year treasury bonds have made out, compounding interest? Their $100 would have increased to a slightly more worthwhile $6,013.10…minus tax and inflation.
Is there a better alternative without undue danger?
Don’t disbelieve in knee-jerk fashion
How about stocks? Stocks? I hear your strangled cry! Let’s see what would have become of that original $100 even after the worst two years in decades and after a net decline in value for the past 10 years. Add to that The Great Depression, various wars and assassinations, multiple recessions, occasional fraud and every other negative thing that could be thrown at the economy. Stocks finished 2008 with $112,868.13, all from a single $100 investment left alone. (And taxes would have been at a lower rate.)
You don’t need to be a genius or even very bright to recognize when the deck is stacked favorably. Stocks are the best investment vehicle and the safest over time. That $112,868.13 was with absolutely no thought or work. Talk about the stock market for beginners! Imagine the result with a little thought!