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The Stock Market For Beginners – Stocks Offer the Most Profitable Investment Returns – Part 2
Here’s all the proof you need of where to discover the biggest gains
We started in a previous article in this series Stock market for beginners to find out what were the best and worst types of investment.
So what is the most profitable investment over time? The record is clear. Corporate stocks are first by a country mile over time. This does not mean that everyone should immediately buy stocks and believe that a future fortune will be theirs.
It’s not always because business leaders are so smart that we can make money from their actions. (We’ve seen them pull so many mindless stunts in the last few months alone. What person in touch with reality would have the guts to attend a Senate meeting to demand a bailout and fly to Washington on their own private jet? Is sure, we don’t have our own jets, but if we did, would mere mortals have such an absence of common sense?)
If you expect inflation, buy stocks
One of the reasons we make money in stocks has nothing to do with the companies themselves; inflation is the cause, and there is massive inflation ahead of the US and other countries that borrowed heavily to get through the recent recession. This money needs to be returned and one way to do that will be by printing more currency with less real value.
This is why the US dollar is already sinking in global currency markets. The smart money knows what’s coming. Forecasting this element of our future does not require tea leaves or palmistry! A sinking dollar means it is less attractive to other countries. This makes imports more expensive, and that means inflation. 1 + 2 = 3.
Those who in the past turned to US dollars for safety are finding gold and other currencies more attractive now. Inflation is not a guess; it is an imminent reality. But what about hard assets? Inflation will make them more expensive to replace, so the value of existing hard assets (factories, production machinery, raw materials) will increase in US dollar terms and decrease in terms of most other currencies.
Hard assets will rise in US dollars
The stocks of corporations that control hard assets must also increase in value, even if sales and production do not, simply because in US dollars their assets will be worth more.
Like anything else, you need to learn the ground rules first. Investing for beginners is simple. It is the so-called professionals who make it look difficult. Of course, we make things worse by going along with them! Think about it: If we all realized how easy it really is, there would be no need for professionals with their big paychecks.
There are about six easy no-guess, simple, mathematical, no-experience rules and you’ll understand them here over the next few weeks.
But don’t believe me that stocks are the most profitable investment vehicle over time. The Federal Reserve Board has been making comparisons since 1928. It was the year before the Great Depression when the US was enjoying what appeared to be a long, happy holiday.
Federal Reserve Test
If you had invested $100 in a 90-day note that year and reinvested that money and its return in a new note every three months, by the end of 2008 you would have accumulated $1,964.64! That assumes you’ve lived that long. Of course, inflation and taxes would have resulted in your savings being almost worthless today.
What about bonds, which many retired investors believe are safer than stocks? To some extent, they they are more stable, but at a price. Many bond investors have fixed income and depend on it 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 in which income was negative two percent or more. Usually not adventurous at all, bond investors only ask that their financial assets be preserved and that they yield reasonable interest. Most don’t realize they can be just as volatile as stocks. Gains of 20% or 30% have not been unusual over the past 80 years, along with declines of 5% to more than 8%.
How would bondholders have fared if they invested in 10-year T-bonds, with compound interest? His $100 would have grown to a slightly more respectable $6,013.10.
Is there a better alternative without undue risk?
What about stocks? Shares? I hear you scream! Let’s see what that original $100 would have become despite the two worst years in recent memory and after a net decline in value over the past 10 years. Add to that the Great Depression, various wars and assassinations, countless recessions, the occasional fraud, and anything else negative that can be thrown at the economy. The stock ended 2008 at $112,868.13, all from a single $100 investment.
You don’t have to be a genius or even very smart to see when the deck is favorable. Stocks are the best investment vehicle and the safest over time. This was absolutely no work. Let’s talk about the stock market for beginners!
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