By now you may be pondering where the best place to invest your money is. You know that US Treasuries offer low returns with very low risk, but you want to achieve better returns than that. You may be thinking to yourself that stocks can earn great returns while being extremely risky and that bonds offer decent returns with much less risk. So bonds are the best place to invest your money, right? WHOOP WHOOP WHOOP WHOOP!! Uh oh; it looks like our myth detector is blaring full blast.
As a matter of fact, bonds aren’t necessarily safer than stocks, and they most definitely don’t offer greater returns. In Debunkery a very well known and successful investor, Ken Fisher, proves this common belief absolutely untrue. Sure, stocks can be volatile and have had many-a-year where they actually lose money. However, once we widen our time frame, things start looking much different.
Fisher shows that from 1927 to 2009 there have been 64 20-year rolling periods. In these 20-year periods, stocks have outperformed bonds in 62 out of the 64 by an average 3.7:1 margin. Still not good enough for you? Fine then (but jeez you are hard to please!). Let’s extend our time period to 30 years. Since 1927 there have been 54 30-year rolling periods, and guess what? Yup, stocks outperformed bonds in every single one by an average margin of 4.8:1. Surprise!
To put it in another perspective, let’s open up Stocks for the Long Run written by Jeremy Siegel. Early in the book, he shows what $1 invested in stocks and bonds in 1801 would look like 205 years later in 2006. If that measly buck was invested in bonds it would have been worth $18,235 in 2006, but if it had instead been placed in stocks it would have been worth $12.7 million in the end. Both look impressive, but investing that dollar in stocks would have earned about 700 times more than if had been invested in bonds. That’s a huge difference!
The numbers don’t lie. Historically stocks have been the best place to invest one’s money. When looking at the big picture with a long-term time horizon, stocks are the safest investment option and offer the best returns. We know where we are placing our money for the future, and we hope you do too now. In the future we’ll start sharing some ideas about how you can find great stocks yourself and make sense of your own cents.
In case you are interested in either of the books mentioned:
Stocks for the Long Run: http://www.amazon.com/Stocks-Long-Run-4th-Definitive/dp/0071494707/ref=sr_1_1?s=books&ie=UTF8&qid=1293574596&sr=1-1
Have a wonderful holiday season and a happy New Year!
