Beating the Street

Gentlemen who prefer bonds don't know what they're missing.

Gentlemen who prefer bonds don't know what they're missing. Stocks outperform bonds. Over the long term, stocks have historically provided significantly higher returns than bonds, CDs, or money market accounts. This is due to the fact that companies grow, increase profits, and raise dividends, whereas bonds offer a fixed rate of return. Over 64 years, a $100,000 investment in long-term government bonds would be worth $1.6 million, while the same amount invested in the S&P 500 would be worth $25.5 million. The odds of stocks outperforming bonds are six to one. Don't be a nation of bondholders. Millions of people are devoted to collecting interest, which may or may not keep them slightly ahead of inflation, when they could be enjoying a 5-6 percent boost in their real net worth, above and beyond inflation, for years to come. Throughout the 1980s, the percentage of household assets invested in stocks declined, even as the stock market quadrupled in value. Most retirement accounts are heavily invested in money-market funds, bond funds, or equity income funds, rather than pure equity funds, which have historically provided the best long-term growth. Long-term perspective is key. While there may be periods when bonds outperform stocks, these are rare and cannot make up for the huge advances made by stocks in the long run. If you hope to have more money tomorrow than you have today, you've got to put a chunk of your assets into stocks.

Never invest in any idea you can't illustrate with a crayon. Amateurs can outperform professionals. Average investors, free from the rules and pressures that weigh down professional fund managers, have a natural advantage in the stock market. They can research companies in their spare time, invest in what they know, and stay in cash when no opportunity appeals to them. Investment clubs, made up of ordinary men and women, have consistently outperformed the S&P 500. Seventh graders at St. Agnes School produced a two-year investment record that Wall Street professionals can only envy. Simplicity is key. The stockpicking methods of successful amateur investors are often much simpler and more rewarding than the complex techniques used by highly paid fund managers. Buy what you know about. If you can't explain what a company does, don't buy it. Focus on companies with room to grow. Local knowledge pays off. Neighborhood investing, researching your own investments, and buying shares in great companies that Wall Street may have overlooked can lead to remarkable results. The remarkable record of local mutual savings banks and S&Ls is powerful evidence that neighborhood investing pays off.