Are Stocks Better Than Other Investments?
There’s always someone at a party who’s claiming their investment asset of choices is the best. In 1999, it was stocks. In 2005, it was real estate. Right now, I’m claiming its Canadian Income Funds and commodities like gold. But is there an investment that’s actually better than something else?
Many proponents of the stock market have claimed that it is better than real estate. It’s more liquid and there’s never been a 10 year cycle where the S&P 500 had a down year. Of course, that’s rubbish. Ever try selling your stocks when the market is tanking? You’ll get taken to the cleaners. According to CNN Money, stocks follow a 16 year cycle. They go up for 16 years and then they’re roughly flat for the next 16 or so years.
, this is factually incorrect. Over a rolling 20 year period since 1900, the stock market has on average returned just under 8%. Real estate also has had And like stocks and real estate, commodities also have their own cycles. Chuck Butler , President of Everbank.com just sent me this email, “… the current Bull Market for commodities is at about 7 years and running… History shows us that (going back 200 years) that Bull Markets in Commodities have trends that last 17-22 years”. If you had bought gold in 1971 for $35/oz, you would’ve done extremely well by selling it in 1980-81 for nearly $800/oz. However, between 1982 and 2000 it languished and you might have given up and sold everything in 1999 after seeing the tremendous returns of the stock market. After all, nothing beats the stock market, right!
But $800/oz gold is here again. I’ve been investing since 2005 when it was around $500/oz. Gold has tripled since its lows of 2000 and is probably set to rally even further as the US Dollar continues its slide.
Even businesses are not free from cycles. There are times when businesses are cheap to buy (if you have the money) and are great money makers, and there are times when they are expensive (although easy with cheap money and easy liquidity) and tough to sustain at a profit.
So essentially there is no ideal investment. No single investment will yield substantial returns, year after year, for extended periods of time. Either you have to be on top of the economic factors that affect the various cycles, and keep switching in and out every few years or decades, or you need to diversify your assets so you have equal exposure to various different asset classes.
So unless you have exposure you US & foreign stocks and bonds, global real estate, currencies, commodities like oil & gas, precious metals, building materials like steel, lumber and copper, and even your own businesses, your investment portfolio is incomplete.
Claiming that one investment is better than another is just the result of ignorance. (Unless you decide to get a job as a day-trader, in which case trading indexed futures is probably the best vehicle, although the toughest to succeed at. But thats not an investment, its more like a job!)
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December 16th, 2007 at 6:20 am
Interesting analysis! I had never seen the 16-cycle presented before. I guess we’ll be stagnant until 2014. Or another way of looking at it is, we have a great buying opportunity until 2014.
Best Wishes,
D4L
December 17th, 2007 at 10:11 am
Like you said there is no ideal investment. Therefore you best take is to get very diversified!!!!