Why the Stock Market
There are many investment choices that we all must decide upon:
Bonds
CDs
Stocks
Futures
Real Estate
Small Business
Venture Capital
Lottery
Gambling
etc...
My favorite two are "small business" and "stocks'. I also like futures but consider them too risky for the vast majority of investors.
Bonds
Bonds and CDs offer a relatively safe investment, but the return is low. All investments trade risk for reward. The higher the potential risk, the higher the potential reward. With too much risk comes almost certain loss as in the lottery and gambling where mathimatically you cannot win in the long run. Historically, bonds underperform the stock market. If you can stomach some volatility, you can do better with your money in stocks than you can in bonds.
Real Estate
I used to think that real estate averaged 10% a year on an average home. Recently I looked up my home's value in 1972 and then did the math and was shocked to find out that the appreciation was 5%. This does not include yearly costs or commisions etc. Many people do well with real estate as land lords or as developers, but its more difficult than it appears on the surface. You can leverage your investment with loans, but you can do the same things with stocks and a margin account. Real estate is a good investment but I consider it to be less work and more headaches that Wall Street.
Venture Capital
Venture Capital is a great way to light money on fire. I've lit my share. VC investments are very risky and maybe only one in five or ten pays off and has to make up for all the others. VC investing is too risky for most investors.
Futures
Commodies and Futures are exciting to trade, but most investors lose. I like to say that if stocks are arithmatic, then futures are calculus. If you house is paid off, kids are done college, and you have 1M in your IRA, then now is a safe time for you to try futures. :) Until then, consider trading commodities to be difficult and dangerous. I read over 50 books on futures before my first trade and still lost 200 large. :O Owe that hurts. I still invest in futures today but am cautious.
Small Business
Have you read the Millionaire Next Door? What an awesome book. Most millionaires own their own business and live below their means. I used to try and get all my friends to open their own business. I discovered that most people can't. They just don't have the entrepeneurial gene and they can't take that large risk of betting the mortgage and quitting work to try and make it on their own. They do not want to leave the man and his dental and health plan. If you have the entrepeneurial gene, consider a small business.
Stocks
Stocks offer investors returns of say 8%-12% a year when considering the historical indexes. Could the stock market disappear tomorrow? I guess so, but it hasn't for 100 years and if it did, so much would be going wrong in the world that it would not matter what you were invested in. The Motley Fools often talk about the Vanguard 500 indexed mutual fund. This fund has average 12.39% since 1976. That is an excellent return. Most people have IRAs or 401ks and stocks these days. People are comfortable with the stock market. The American IRA and Canadian RRSP are two of the last greatest tax loopholes left. 12.39% in a tax free IRA is a license to print money!
Try this...
$0 starting money, 3k a year for 32 years at 12.39%
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
There is your million dollars. This is not witchcraft voodoo. This is the stock market and the power of compounding interest. Almost anyone can find $3000 a year. I would even go as far as saying....put it on your credit card. Yes! LOL :) The key is disciplined yearly investment. You must put that 3k or more into the IRA or investment each and every year and you must think long term.
The stock market offers:
-above average returns
-reasonable risk
-no tenants customers or employees
-tax free vehicles
