Do Stocks Make Sense?

Though stocks are often perceived as risky investments, over time they’ve performed better than any other type of security, even better than gold. Over the course of more than 200 years (from 1802–2002), stocks have returned an average 6.6% annually, while bonds have returned 3.60%, and gold only 0.7%. What’s more, this is true the whole world over, not just in the United States. For long-term real returns, you really can’t beat the stock market.

In the short-term, stock returns can be volatile, but that’s not unexpected. What most people don’t realize, though, is that other securities, even those that are supposed to be safer, suffer that same fate. Bonds, for example, also see wide swings in returns when looked at for short periods.

The highest long-term returns make stocks very attractive to investors and financial planners alike, but they’re not the only reason that owning stocks makes sense. With literally thousands of publicly traded companies trading in the United States alone, there’s a huge variety of stocks to choose from, making it easy to have a diversified portfolio. With the wealth of easily available information at your fingertips, you can find technical, historical, and analytical data at a moment’s notice, helping you keep track of your investments with very little effort.

Then there’s the cash benefit: Stocks are among the easiest assets to liquidate, meaning when you need cash, you can get it fast. On top of that, many stock investments, referred to as income stocks, also pay out regular dividends, providing investors with a steady and reliable stream of cash. In fact, many dividend rates are higher than the interest rates on bonds.

That said, the stock market can have nerve-wracking swings (where prices move erratically, like a pinball), exciting run-ups (when prices climb ever higher), and devastating downfalls (where prices plummet). Short-term fluctuations are bound to happen, but sticking with stocks for the long haul is still the surest way to see the best returns.