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Your take: Is stock investing for suckers?

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Do you still believe in stock investing?I don’t blame people for wanting to give up on investing in stocks.

In the last 20 years, we’ve had a massive tech bubble burst, two recessions and a financial crisis that cut the value of the S&P 500 by more than half in a matter of months.

If stocks were a party guest, they’d be the rowdy drunk who you finally stop inviting to things after they break their third lamp.

The proof is in the numbers: a July survey by asked Americans what the best way to invest money you won’t need for 10 years or more. The most popular answer, with 26 percent of the vote, was cash. Cash! People would rather accept an average return of less than 1 percent (and much less in many cases) than get into stocks again.

The second most popular answer was real estate, which has admittedly done pretty well lately, but historically returns about the same as inflation. Even gold, which has lost more than 20 percent of its value over the last year, finished ahead of stocks! In fact, only 14 percent of people said stocks would be the best way to invest long-term.

Why giving up on stock investing is wrong

I understand that sometimes it’s tempting to look at stock and think, “Hey, that’s just a bunch of worthless paper. Look at how the price is constantly jumping around … it must be a scam.” But stock represents a piece of something real. When you buy stock in FedEx, you own a tiny piece of their vast army of trucks, planes and warehouses, and all the cash flows they generate.

It’s just math that if the companies you’ve invested in are generating positive cash flows, those flows will eventually go to shareholders in one of two ways: either through reinvestment in the business (buying more trucks), which increases a company’s value (and the value of your little piece of it), or through direct payouts like dividends or stock buybacks.

Of course, some companies will never generate positive cash flows for investors who buy in today. And it can be really hard to predict whether an individual company will end up as a KMart, where shareholders’ capital goes to die, or a Google, generating billions of dollars in income every year.

Fortunately, index funds make it cheap and easy to buy a small piece of the whole stock market, rather than taking a chance on one company. Some companies will win, some will lose, but in order to believe that you can’t make money investing in a domestic index like the S&P 500 over the long term, you have to believe that American companies will not, as a group, make money.

Death, taxes and corporate profits

I’ve lost faith in a lot of things over the course of my lifetime: Santa Claus, the Miami Dolphins and the U.S. political system’s ability to effectively govern, to name a few. But if there’s one thing that appears to be a constant, it’s corporations’ ability to hoover money out of our pockets day-after-day, month-after-month, year-after-year. Every time you have to pony up $10 to send a small package at FedEx, pay yet another damned late fee to Chase because you forgot to mail your credit card payment on time, or fill up your tank with overpriced gas at an ExxonMobil station, their shareholders get a cut. I firmly believe that if there’s ever some kind of global nuclear war or other apocalyptic disaster, the only things left on earth will be dirt, cockroaches and multinational corporations.

At the end of the day, you can either get a piece of all that action and let those companies work for you, or continue accepting whatever a bank feels like paying you in a money market account somewhere. I’m not saying all your money should go in stocks — everyone has different needs when it comes to investing, and the way people allocate their assets should reflect those needs. But for the vast majority, especially young people starting to save for retirement, not putting any money in stocks at all is a mistake that makes life harder than it has to be.

If you don’t believe me, think about rich people you know, either in-person or from the headlines. How many of them do you think have no stock investments at all? How many of them think stocks are a scam?

So I’ve told you what I think about stock investing. Now it’s time to give me your take: Do you invest in stocks? Why or why not?

(Photo: Flickr user Azureon 2)

{ 9 comments, please add your thoughts now! }

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9 Responses to “Your take: Is stock investing for suckers?”

  1. I still try to invest in stocks. What little I have invested has increased in value. It’s increased even with all of the economic problems.

  2. Alissa says:

    I love this: “If stocks were a party guest, they’d be the rowdy drunk who you finally stop inviting to things after they break their third lamp.”

  3. Claes Bell says:

    Alissa: Thanks!

  4. David S says:

    I still invest in stocks because they are the only things that can provide a return greater than inflation over the long run.
    Savings account rates are perhaps 1% over a long run of true growth, bonds are around 3%, but stocks are average of 7%.
    Anyone who has kept their money in the stock market as a diversified portfolio, has made back any losses, even if they only bought at the peak 10k in 2000, 13k in 2008. (Though it would only have been a 4% yield)

    • Sadie says:

      Today I wonder if we are approaching another peak?? The good times come & the good times are sure to go!

  5. fabclimber says:

    I read an article quoting the statistic that the very wealthy only average about 17% in stocks, so if we are exceeding that range we are gambling (taking on more risk) than the wealthy who can afford high priced financial advice.

    They stay ahead because they don’t “bet the farm” on stocks.

  6. Rose says:

    Invested last year in Stratsys shares at $54 – now up to $109. I do not like my IRA A-fund that earned $5 after fees!

  7. Donald says:

    Rich people have a lot of money in stocks so I should too? Well, rich people have a lot of money in a lot of different kinds of investments, including cash. Rich people, if they are rich enough, have enough money to maintain their rich lifestyle even if the stock market crashes, which it does every now and then. If you are counting on stocks for your retirement and don’t have a back-up plan, you will be in trouble if the stock market crashes on your retirement day. People who are not rich should not invest as if they were. Stocks are not a scam, but the stock market is a gamble.

  8. Claes Bell says:

    Hey guys, thanks for all the comments. First off, just want to say that how much money you allocate to stocks should be based on your own individual situation. I never said people should “bet the farm” on stocks, I just said I think abandoning them altogether because they carry more risk than CDs is ill-advised, and tried to explain why. In the world of investing, taking on zero risk basically guarantees you’ll never earn more than inflation, and in many cases you’ll lag. I’m just trying to make a case for using stocks as “part of a balanced breakfast” so to speak.

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