Stocks
Young Fools
March 25, 1998

The Case for Stocks

By now, you should have looked over a bunch of different investment options. You might have noticed that most of them are either a little too risky (junk bonds, lottery tickets, baseball cards), or they don't offer too high a return (bank accounts, money market funds, CDs). So they probably don't seem like ideal places to put your money. Remember -- we're looking for something that gives us as high a return as possible with as little risk as possible. The place to be? For most young people, it's in stocks.

Why? Because over the long-term, stocks perform best. Let's look at a few historical numbers. The ones I use below are taken from the book Stocks for the Long Run, by Jeremy Siegel, a business professor at the Wharton School at the University of Pennsylvania.

Professor Siegel studied how stocks and other investment options (such as bonds and gold) performed over almost 200 years. He found that stocks fared best. To prove his point, he looked at what happened to a single dollar if it was invested in 1802 (only three years after George Washington died) in stocks, short-term bonds, long-term bonds, and gold. The results are impressive. In 190 years, the single dollar grew to the following sizes:

Stocks:             $3,050,000 
 Long-term bonds:        $6,620 
 Short-term bonds:       $2,934 
 Gold:                      $13

Let's look at a more recent period. Between 1926 (just before the big crash of 1929 that preceded the Great Depression) and 1992, stocks returned a yearly average of 12%.

Professor Siegel notes that when you factor in inflation, these averages drop a few percentage points. (But returns for any other investment option also decrease due to inflation.)

Anyway -- the big conclusion here is summed up by Professor Siegel's book title, Stocks for the Long Run. Young people who can leave their money to grow for many years should probably be in stocks.

Before you decide to definitely put all your money in stocks, though, make sure you've read all the information we have here. (Heck -- read even more information.) Make sure that you've asked lots of questions and thought about the answers. You should start investing as soon as you're ready, but it doesn't have to be tomorrow. You can take a few months or even a whole year to think things through and try picking hypothetical, make-believe portfolios of stocks.

Once you start thinking like a Fool, we think you'll understand that the stock market is really the best way to go. But we want you to be aware of other routes, too.

Stocks

What is Stock?
The Case for Stocks
Stock Prices and Value
How Do Stocks Move?
Dividends
What are Mutual Funds?
What are Index Funds?
Stock Splits