A picture paints a thousand words.
Here’s a chart that does a comparison between investing in Equities, Bonds and holding Cash.
*Acknowledgement: Taken from a report from IPP. Details of ownership is in the graphic
As you can see, despite equities fluctuating up and down across time, they give the best returns over time. Whilst there are a lot of considerations into how equities can give us the best returns or not, it is generally agreed that equities as an instrument does provide better for your retirement than other investment vehicles.
Some reasons NOT to invest in equities:
1. Risky - People have been known to go bankrupt because of stock investing. Some people cannot stomach the rise and falls of equity investing.
2. Needs a certain amount of work - there’s no free lunch in this world. You’d still need to know what you are doing when it comes to investing. Especially in equities.
3. Illiquid - Sometimes you cannot take out the cash for emergency use in a short period of time without compromising your returns
There are other reasons that is not shown in the picture above on why one OUGHT to invest in equities (and sometimes, not investing in equities is such a big mistake). We’ll cover them in short below:
1. Ownership
Investing in equities makes you a partial owner in the companies you buy shares in. Voting rights are given to you. Sometimes one can really feel proud of owning a stellar company. And if you are an active investor who influences company decisions, it is even more so. This is why a lot of directors take a huge vested interest in their own companies.
2. Inflation
Having your money in cash or bonds over long term is a sure lose situation when you factor in inflation. An inflation of 6% yearly means you need a return of at least 6% to at least ‘break even’. Few bond investments and savings allow such returns. Only equities amongst the three can help you break out of the losing cycle.
It looks like there’s no escape when it comes to investing that we ought to consider equities to grow our wealth. In the coming blog posts over time, I hope to cover topics that counters the reasons on why not to invest in equities.
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November 15th, 2008 | Tags: are stocks safe, Equities, equity investing, how safe are stocks, how to invest in, how to make money work for you, investing in equities, investments, ipp, reasons to invest, reasons to invest in stocks, why invest in, why invest in stocks | Category: Equities, Investment | Leave a comment
