Advantage of Individual Investor

 

Once Andrew Mellon said -“Gentlemen prefer bonds”.

Investing in bonds, money market, or CDs are all different form of investing in debt- for which one paid interest. There’s is nothing wrong with getting interest, especially if it is compounded. Consider the Indian of Manhattan, who in 1626 sold all their real estate to a group of immigrants for $24 in trinkets and beads. For more than 350 years the Indians have the subjects of cruel jokes because of it- but it turns out they may have made a better deal than the buyer who got the island.

At 8 percent interest on $24 compounded over all those years, the Indians would have built up a net worth just short of $30 trillion, while the latest tax record from the Borough of Manhattan show the real estate to be worth only $28.1 billion is assessed value, and for all anybody knows it may be worth twice that on the open market. So Manhattan’s worth $56 billion. Either way, the Indian could be ahead by $29 trillion and change.


Treasury bonds with 20 years maturities in 1980 have seen the face value of their bond nearly double, and their original investment. If you were smart enough to have bought 20 years T-bonds then, you have beaten the stock market by a sizable margin, even in this latest bull phase.

If interest rate goes in direction that works against the bondholders, the bondholders are stuck with the bonds.

Historically proven, investing in stock is undeniable more profit than investing in debt.

In 1927, if you had put $1000 in each of the four investments listed below, and the money had compounded tax free, then 60 years later you have had these amounts:

 

Treasury bills

7,400

Government bonds

13,200

Corporate bonds

17,600

Common stocks

272,000

 

In spite of crashes, depression, wars, recession, ten different presidential administrations and numerous changes in skirt lengths, stocks in general have paid off fifteen times as well as corporate bonds, and well over thirty times better then Treasury bill!

The point is that fortune change, there is no assurance that the major companies won’t become minor, and there is no such thing as a can’t- miss blue chip.  Buy the right stocks at the wrong price at the wrong time and you will suffer great losses. If you risk averse, then the money market fund or the bank is the place for you. Otherwise, there are risks wherever you turn.

These days, bond funds fluctuate just as wildly as stock funds. The same volatility in interest rates that enables clever investors to make big profit from bonds also make holdings bonds more of a gamble. 

There is no way to separate investing from gambling into those neat categories that are meant to reassure us. Stocks are most likely to be accepted as prudent at the moment they are not. Small stocks have become investments and the speculating is done in future and option.


Betting with blue chip relieves them of the need to pay attention, so the people lose half of their money in quick fashion and may not recoup it for another eight years.

Clearly the stock market has been a gamble worth taking- as long as you know how to play the game. And as long as you own stocks, new cards keep turning up. Now that think of it, investing in stocks isn’t really like playing seven card stud poker hands. It is like playing a 70 card stud poker hand, or if you own ten stocks, it’s like playing ten 70 card hand at once.

 

Congratulation you take one more step towards your financial freedom.

 This Summary from "Learn To Earn"

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