Why Don't You Invest?

Last month, The Motley Fool posted a beautiful video titled "Why Do You Invest?"

"Is it for the fancy cars? The dream home?" the ad asks. "Maybe we invest for our families," it ponders, a reason I think most investors would agree with.

But there's a related question for millions across the country: Why don't you invest?

About 54% of U.S. households own stock investments, according to a 2011 Gallup poll. That leaves 46% that do not.

Part of this is due to a lack of wealth -- many American households simply don't have any money to invest. But there's more to it. A 2008 paper by a trio of economists showed that (link opens PDF file) sizable numbers of even the wealthiest Americans don't own stocks. Of households ranked in the third quartile of wealth, 34% did not own stocks either directly or through mutual funds. Of those in the top quartile, 14% had no stock exposure. Within the richest 5% of American households, 6% owned no stocks.

Some of the wealthiest households may avoid stocks because ownership in private businesses offers better opportunities. But for others, the excuses are more interesting.

Two centuries of data makes one point clear: Over the long haul, stocks trounce the returns of bonds, cash, commodities, and real estate -- and they do it with less risk. Adjusted for inflation, $1 invested in stocks in 1802 was worth $755,000 in 2006. In bonds, $1 turned into $1,083. Gold grew to $1.95. Cash depreciated to $0.06. During that 200-year stretch, the worst 20-year period for stocks produced a real return of 1% a year. For bonds, the worst period eroded half of investors' purchasing power. Stocks win over the long haul, and yet a large number of Americans avoid them.

Why is hard to know, but not particularly surprising. Americans' love for self-destructive financial behavior is never-ending. One incredible 2005 report (link opens PDF file) led by Yale economist James Choi showed that half of workers over 59.5 years old -- and hence eligible to withdraw money from a 401(k) plan right away -- do not contribute enough to retirement plans to take full advantage of employer matching, turning down money that would have been theirs to spend immediately. Two-thirds of those over 59.5 years old not participating in a retirement plan with employer matching said they would never sign up. It's astounding, as they could have pulled the money out the next day penalty-free.

Choi's paper doesn't detail attitudes toward stocks, but his results speak volumes about people's attitudes toward money in general. When something requires a modicum of effort, many Americans decline -- even if it offers substantial rewards. Our aversion to paperwork can be stronger than our desire for money.

Past performance also guides people's willingness to own stocks. While 54% of households currently own stocks, that figure was as high as 65% in 2007 when the market hit an all-time high. As USA Today wrote in 2005:

In 1996 and 1997, when the bull market was in full swing, Washington [state] gave its teachers an option of staying in the traditional pension plan or switching to a hybrid pension plan -- 50% of assets in a traditional pension and 50% in a private account. Seventy-four percent opted for the hybrid plan. But when public employees were offered the same choice in 2002 and 2003, after the slump, only 11% chose the hybrid offering.

Those who do invest in stocks tend to do miserably at it, reinforcing their perception that it's a losing game. One study by Dalbar showed that (link opens PDF file) the S&P 500 returned 9.14% a year over a 20-year period ending 2010, but the average investor earned 3.83% a year by buying high and selling low. Stocks crush bonds over the long run, but many would be better off in bonds so long as they stay put. They're that bad at investing.

Then there's the fear of being cheated. The same three economists mentioned above wrote a great paper (link opens PDF file) in 2008 asking a group in the Netherlands a simple question: "Generally speaking, would you say that most people can be trusted or that you have to be very careful in dealing with people?"

The question has nothing to do with stocks, but it was highly significant in predicting stock ownership. "Trusting others increases the probability of buying stock by 50% of the average sample probability and raises the share invested in stock by 3.4% points," the authors wrote. The results "explain the significant fraction of wealthy people who do not invest in stocks." The study is likely applicable to the United States.

Another possibility -- though one I don't have evidence for -- is that people willingly forego higher long-term returns to avoid the nausea of stock volatility. Academic economists tend to view people as unemotional "utility maximizers" for whom rational behavior equals whatever is most efficient, but the real world is different. Trading a percentage point of returns for a better night's sleep may be worth it for those who value a peaceful life over a large net worth. What looks irrational on the chalkboard often makes sense in the real world.

With pensions a dying relic, more Americans are now responsible for financing their own retirements. For most, the only way to get there is heavy exposure to stocks over many years. Will those now shunning stocks eventually change their minds? Will they ever get to retire? It's hard to know. Never underestimate people's willingness to undermine their future.

For more like this, check out my latest e-book, 50 Years in the Making: The Great Recession and Its Aftermath, on Amazon for your Kindle or iPad. It's short, packed with information, and costs less than a buck.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 28, 2012, at 3:46 PM, CrankyTexan wrote:

    >>> many American households simply don't have any money to invest. <<<

    EVERY American has money to invest. If you can afford a cell phone, you have money to invest. If you can junk food, you have money to invest. If you can afford cable TV, you have money to invest. If you can afford to go to the movies, you have money to invest.

    >>> When something requires a modicum of effort, many Americans decline <<<<

    In my opinion, most people do not invest wisely because no one teaches them how. They assume investing is much more difficult than it is. Personal finance should be taught in high school.

  • Report this Comment On February 28, 2012, at 5:29 PM, xetn wrote:

    " About 54% of U.S. households own stock investments, according to a 2011 Gallup poll. That leaves 46% that do not."

    That must be the close to 50% of Americans that receive some sort of check from Uncle. As I recall, about 46% are on food stamps. Maybe they could cash in their food purchases and purchase some stock.

  • Report this Comment On February 28, 2012, at 5:36 PM, hbofbyu wrote:

    If you are a turtle and you stick your head out of your shell three times and all three times it gets crushed by a baseball bat do you stick your head out a fourth time?

    Stocks are like that for some people.

  • Report this Comment On February 28, 2012, at 6:04 PM, DJDynamicNC wrote:

    ---> "In my opinion, most people do not invest wisely because no one teaches them how. They assume investing is much more difficult than it is. Personal finance should be taught in high school." <---

    Exactly right. People see the stocks section of the NY Times and their eyes glaze over. It looks far more complicated than it needs to be. This is why sites like the Fool are absolutely essential, in the absence of proper financial education delivered in high school.

  • Report this Comment On February 28, 2012, at 6:07 PM, hbofbyu wrote:

    Why I don't invest in stocks:

    1. In the short term the stock market is a crapshoot; in the long term we are all dead.

    2. My formative investing years were 1999-2001. My first investments were: Cisco, JDSU, Nokia, Celera, Qualcomm among others. I lost 70% of all my savings in about 2 weeks. The ones I still hold remain underwater - as I cling to the myth that the "long term" will save me.

    3. Unless you work for the company, you will never have as much information to trade on as the people on the other side of the trade. The deck is stacked against the individual trader.

    4. My companies 401K managed by Fidelity Investments returns a measly 5% by investing in stocks. And they are the "experts". I have Money Market certificates at my credit union that are giving me 7%.

    5. Stocks are like the modern day gold rush. You get rich off the rush, not the gold. (The brokers get rich, not the traders).

    I learned a lot from #2 in this list. So I am trading again but I can never bring myself to buy a stock with a sky high P/E ratio. High P/E raios make me physically sick to my stomach.

    I don't trust the statistic that the stock market outperforms the others because I don't see anyone keeping track of - or including - all the thousands of companies who have gone bankrupt and been delisted through the past 100 years. It's a self-selecting list. Of course it will have positive results if you only count the ones who are still around.

    It reminds me of those who make it big in Hollywood who tell everyone to "never give up on your dreams and you will make it". Well, there are a lot who have followed their dreams and ended up in the gutter but they don't have an audience and noone is going to listen to their story of failure.

  • Report this Comment On February 28, 2012, at 6:07 PM, DJDynamicNC wrote:

    "That must be the close to 50% of Americans that receive some sort of check from Uncle. As I recall, about 46% are on food stamps. Maybe they could cash in their food purchases and purchase some stock."

    Since the average payout is $300 a month, it's unlikely they'll have much left over after paying for food. But then, this wasn't a serious proposal, anyway, was it? Just another chance to moralize, to feel successful at the expense of those who struggle.

    Hope it was worth it.

  • Report this Comment On February 28, 2012, at 6:08 PM, DJDynamicNC wrote:

    --> " don't trust the statistic that the stock market outperforms the others because I don't see anyone keeping track of - or including - all the thousands of companies who have gone bankrupt and been delisted through the past 100 years. It's a self-selecting list. Of course it will have positive results if you only count the ones who are still around."<--

    That's a really good point. Are these factored into the charts and long term statistics we see posted all over the place?

    I never even considered that. Excellent point.

  • Report this Comment On February 28, 2012, at 6:11 PM, drborst wrote:

    I wonder how many people stopped investing after the news of Bernie Madoff broke.

    And how many people read about the hedge fund managers wealth and think, I don't want to do anything to make those *%^#-ers richer.

    DRB

  • Report this Comment On February 28, 2012, at 6:12 PM, TMFMorgan wrote:

    <<I don't see anyone keeping track of - or including - all the thousands of companies who have gone bankrupt and been delisted through the past 100 years. It's a self-selecting list.>>

    If you invest in the "list" such as the S&P 500, this is irrelevant. That's why diversification is key.

  • Report this Comment On February 28, 2012, at 6:17 PM, dennyinusa wrote:

    Xetn

    As I recall, about 46% are on food stamps.

    Real number is about 15%.

    According to a FowNews.com story August 5, 2010, there were 40.8 million people receiving food stamps as of May 2010. USDA projected 43.4 million for 2011. According to Huffington Post story August 3, 2011, there were 45.8 million people receiving food stamps. The population of the United States is about 312 million people meaning 15% percent of residents use food stamps.

  • Report this Comment On February 28, 2012, at 6:19 PM, DJDynamicNC wrote:

    It will still impact analyses of the long term yield on stocks as a general method of investment though, won't it?

    I'm not saying that it should scare people off from investing, but it seems likely that that's going to impact long term yield for many investors in a way that's not being accurately reflected in the statistics.

  • Report this Comment On February 28, 2012, at 6:21 PM, hbofbyu wrote:

    The S&P 500 is up only 20% over the past 10 years.

    That's a 2% return. Index funds are not a good argument.

  • Report this Comment On February 28, 2012, at 6:21 PM, TMFMorgan wrote:

    On individual stocks, yes, but not on an index like the S&P. Periodically the S&P removes weak stocks and replaces them with better stocks. If you own the index through an ETF or mutual, you never know.

  • Report this Comment On February 28, 2012, at 6:22 PM, TMFMorgan wrote:

    ^ Using the peak of the biggest bubble in history as a starting point isn't very instructive.

  • Report this Comment On February 28, 2012, at 6:24 PM, CrankyTexan wrote:

    >>> It reminds me of those who make it big in Hollywood who tell everyone to "never give up on your dreams and you will make it". Well, there are a lot who have followed their dreams and ended up in the gutter but they don't have an audience and noone is going to listen to their story of failure. <<<

    Only a handful of people become movie stars. Millions of people profit from wise stock investing. If you are not good at picking individual stocks, just buy VTI.

  • Report this Comment On February 28, 2012, at 6:29 PM, DJDynamicNC wrote:

    Ahh, I see, and most of those long term stats are drawn from indices like S&P 500, and hence take that into account. Makes sense. Thanks!

  • Report this Comment On February 28, 2012, at 6:31 PM, TMFMorgan wrote:

    Yep. There is survivorship bias among all funds, but not in any given fund.

  • Report this Comment On February 28, 2012, at 6:34 PM, hbofbyu wrote:

    VTI? Then it comes down to the question of whether the stock market is over-valued or under-valued right now. It's impossible to say since the value of a stock is only determined by the underlying confidence of those who trade. We need psychologists, not MIT math majors.

  • Report this Comment On February 28, 2012, at 6:40 PM, ybnvsfool wrote:

    I guess that a person that works 50 to 60 hours a week for 35 years and pays off all debt, spends responsibly, invests without the wisdom of the chosen ones, gives generously to charity, sends his children to the best schools and doesn't feel guilty for his good fortune really is a fool. For me and my family, I like being the Jonseses.

  • Report this Comment On February 28, 2012, at 6:41 PM, ybnvsfool wrote:

    Joneses.

  • Report this Comment On February 28, 2012, at 7:14 PM, CrankyTexan wrote:

    >>> VTI? Then it comes down to the question of whether the stock market is over-valued or under-valued right now. It's impossible to say since the value of a stock is only determined by the underlying confidence of those who trade. We need psychologists, not MIT math majors. <<<<

    You need neither psychologists nor MIT math majors. All you need is decades of patience.

  • Report this Comment On February 28, 2012, at 7:15 PM, CrankyTexan wrote:

    >>> I guess that a person that works 50 to 60 hours a week for 35 years and pays off all debt, spends responsibly, invests without the wisdom of the chosen ones, gives generously to charity, sends his children to the best schools and doesn't feel guilty for his good fortune really is a fool. For me and my family, I like being the Jonseses. <<<

    I just gave you the wisdom of the chosen ones. Invest in VTI.

  • Report this Comment On February 28, 2012, at 7:52 PM, optimist911 wrote:

    The main reason many don't invest is simply uncertainty about their own situation: They can't afford short-term haircuts of 10-20% on money they might need tomorrow when they're fired, have some sort of emergency, etc. Investing is essentially a vote of confidence in one's current situation, both personal and external. Besides, who knows whether they'll be alive in 10 years?

  • Report this Comment On February 28, 2012, at 7:55 PM, CrankyTexan wrote:

    >>> They can't afford short-term haircuts of 10-20% on money they might need tomorrow when they're fired, have some sort of emergency, etc. <<<

    You're supposed to save up an emergency fund before investing in stocks.

    >>> Besides, who knows whether they'll be alive in 10 years? <<<

    The purpose of investing is in case you are alive in 10 years.

  • Report this Comment On February 28, 2012, at 9:21 PM, Hawmps wrote:

    Someone posted this comment a while back and it is so priceless that is deserves repeating and sums up the counter investment mantra beautifully....

    "Math is hard, let's go shopping"

    I think most people that don't invest (pick your poison, stocks, bonds, real estate, precious metals) just cannot understand, or refuse to understand, the concept of delayed gratification and usually have a hard time seeing past next Tuesday much less trying to figure out how much they think they will need to eat and shelter themselves 20 to 40 years out. Refer to above quote.

  • Report this Comment On February 28, 2012, at 11:34 PM, dennyinusa wrote:

    Both parents lived during the 1929 stock market crash and the depression that followed.

    My sibling and I grew up to stories of what life was like growing up in the 1920s, 1930s and early 1940s. Needless to say they had a very negative view of the hardships many people had to endure, that many felt were caused by their generation’s Smartest Guys in the Room/Masters of the Universe.

    If you grew up in this environment you become quite jaded about the investing in the stock market.

    The only reason I finally started investing in 1996 at the age of 34 was a 20 year old friend at my workplace took the time to teach about mutual funds and stocks.

    I have tried to teach my nephews and nieces, but the crash of 2008 I am afraid will leave another generation jaded about investing in the stock market.

    Until someone can explain to people in terms they can understand why a flash crash happens, why they should not fear dark pools, why naked short selling is ok or why holding a stock for milliseconds is still called an investment I believe another generation will not feel comfortable investing on the stock market.

    I still invest because I have seen positive results investing mostly in dividend stocks. But I can understand why people may not have a positive view of the stock market.

  • Report this Comment On February 29, 2012, at 12:24 AM, Rare440 wrote:

    I have been investing for a number of years, mostly with success. Almost without fail when someone asks me about it, the standard reply is something to the effect of, "oh, I could never figure out how to do that," or "I just never understood how stocks work." Ignorance is really the culprit to comments like these. If schools taught kids more about finance before they become adults with bad money habits, society wouldn't be facing a generation of retirees who have nothing to show for their working years. It boggles my mind that so few people will make the effort to learn how stocks work and how they could benefit from them. And people wonder why the U.S. is falling behind - I think it's crystal clear.

  • Report this Comment On February 29, 2012, at 1:36 AM, radartal wrote:

    I invest successfully by picking high value dividend stocks, however do not give advice to other regarding investment-

    If my advice will be right they will not remember , if i will be wrong , they will not forget....

  • Report this Comment On February 29, 2012, at 3:43 AM, kyleleeh wrote:

    <<I have tried to teach my nephews and nieces, but the crash of 2008 I am afraid will leave another generation jaded about investing in the stock market.

    Only if they sold at the bottom, with dividends I was back in the black by 2010. Employment may be lagging but as far as stocks go this was a very rapid recovery.

  • Report this Comment On February 29, 2012, at 10:31 AM, DJDynamicNC wrote:

    If they were lucky enough to start investing during the crash, then they've made out like bandits.

  • Report this Comment On February 29, 2012, at 5:13 PM, mclaugph wrote:

    <<If you invest in the "list" such as the S&P 500, this is irrelevant.That's why diversification is key.>>

    If everyone investing in the S&P500, what happens to all the other stocks?

    Agree, diversification is key, but you'd still lose your shirt if you'd invested in Pets.com, Celera, Enron, Citigroup, etc.

    While I agree on balance that diversification in stocks is the way to go, the accuracy of statistics thrown around seems dubious to me.

  • Report this Comment On February 29, 2012, at 5:35 PM, stmmmd99 wrote:

    I literally started investing in Oct 2007, at the all time height of the market. I quickly saw my portfolio sink to -35%. But it's back up to +22% because I kept buying in. It would be +32% if I only had MF:SA stocks. So I learned my lesson. I'm just too stupid to pick stocks on my own.

  • Report this Comment On February 29, 2012, at 8:58 PM, risad wrote:

    stmmmd99-you are not stupid it is a very tedious project trying to analyze a stock because many of the financial statements have large projections many i presume are even false to a point

  • Report this Comment On February 29, 2012, at 9:28 PM, kyleleeh wrote:

    <<stmmmd99-you are not stupid it is a very tedious project trying to analyze a stock >>

    Agreed, you're judging yourself harshly over an extremely volatile 5 year period. It takes time to see how your picks will pan out, you may think yourself not smart enough to pick stocks today and be kicking yourself for not hanging on to them 15 years from now.

    How do you think people that dumped Apple at $7 in 2000 feel about their decision now?

  • Report this Comment On March 02, 2012, at 5:15 PM, jennesy wrote:

    "That must be the close to 50% of Americans that receive some sort of check from Uncle. As I recall, about 46% are on food stamps. Maybe they could cash in their food purchases and purchase some stock."

    More than 50% of Americans "receive some sort of check from Uncle [Sam]" - what do you call your mortgage interest tax credit, your child tax credit, credit for interest paid on student loans, social security, etc. etc. etc. Comments like this make me sick. Every American - save for those who live off the grid - gets "some sort of check" from Uncle.

  • Report this Comment On March 02, 2012, at 8:07 PM, sidehiller wrote:

    <<--Morgan Housel wrote "Periodically the S&P removes weak stocks and replaces them with better stocks. If you own the index through an ETF or mutual, you never know."-->>

    If an indexed fund is passively managed, it would own those S&P 500 stocks which had deteriorated right up to the point of their removal from S&P's list of 500...and then would have to sell those stocks at their very deteriorated price becasue the stocks would have been removed from the S&P index.

    So, it seems to me that you WOULD feel some of the pain of having invested in an S&P 500 stock that slid and slid and finally slid right out the bottom of the list.

    All those assertions of the great performance of stocks based how S&P 500 stocks have done is (to me) sort of like saying how racehorses are great earners but basing that assertion on only the Triple Crown contenders at the peak of their game and ignoring all the other racehorses that broke down.

  • Report this Comment On March 03, 2012, at 2:25 AM, 1022ThirdAvenue wrote:

    One should pay no attention to any commentator that uses statements like "$1 invested in stocks in 1802 was worth $755,000 in 2006" as Ms. Housel did here. First, it is not possible for any investor to wait 210 years to realise such a result. Second, some simple arithmetic with a pencil and paper will indicate that it is impossible to actually obtain any appreciation nearing that measured by any index that you chose over the very long term.

    As to the second point, companies come and go. Bankruptcies occur and companies simply close their doors and go out of business. The indicies select only the companies then remaining in the market and adjust the value of the index to account for both the removal of the company that went out of business and the inclusion of the next company in line to join the index. As an individual investor, we must live with the loss accompanying the loss of a company. We do not have the privilege of living in the fantasy world that is populated by those computing the value of the various indicies.

    The above quoted concept, which I have seen used repeatedly by commentators parading their wares, is misleading at best and a downright lie at worst. Each index, whether it be weighted by market capitalization, equally weighted, or value weighted, is adjusted daily based upon the criteria used to compute the value of the index. Even if one attempted to match the index of choice, it would not be possible to match the long-term performance of the index. This is one reason that Exchange Traded Funds tend to fail miserably at what these are claimed to do. This is because in computing the value of the index, no consideration is given to the transaction costs associated with buying or selling a certain number of shares according to the formula used to compute the value of the index. Further, computation of the value of the index at any point in time fails to include the spread between the bid price and the sale price of the share. It is not difficult to see that even the two costs associated with real engagement in the market will cause a strong downward pressure on the computed value of the index over a long period of time.

    Before Ms. Housel starts spouting further statistics about a dollar growing to fantastic amounts of money over more than two centuries, I suggest that she does the following: (1) set a more reasonable starting time, say 12th April 1995; (2) select an index as it stood on that date, say the ^DJIA; (3) account for the losses associated with every company that was dropped from the ^DJIA between 12th April 1995 and the current date; (4) account for the cost of purchasing sufficient shares in the company that replaced the company identified in enumerated item (3); (5) account for the transaction cost of sale and purchase of sufficient shares in each company to match the adjustment required by the formula used to compute the ^DJIA; (6) account for the spread between the bid price and the sale price for each sale and purchase identified in item (5); and, (7) account for the taxes, including income and capital gains, associated with the aforementioned sale and purchase and any dividends that might have been distributed during the holding time. Finally, I challenge Ms. Housel to rationally compare the result obtained according to the real world implementation of the ^DJIA as described above with results obtained by buying 10-year treasuries, or municipal bonds, over that same period of time.

    I am willing to wager the following: (1) that Ms. Housel will find that using the real world steps identified above will give a result on 3rd March 2012 of either a 0% increase over 12th April 1995, at best, or will be in the negative territory; (2) that the performance of 10-year treasuries or municipal bonds over that same period of time will beat the pants off of any real world strategy that includes the steps identified above.

    By the way, the Gardner brothers parade the increase in their selected portfolio month after month. Has any one ever bothered to work out the average compound annual growth rate of their portfolio? I checked a couple of months ago and it was no better than 7.2%. Long term, the market exceeds 10%. My point is made.

  • Report this Comment On March 03, 2012, at 10:46 AM, TMFMorgan wrote:

    Folks, there is no survivorship bias within the S&P 500. The long-term returns cited include the impact of companies that suffered miserable returns and were eventually removed.

  • Report this Comment On March 03, 2012, at 10:50 AM, TMFMorgan wrote:

    And the most relevant point of the long-term stock returns is not the 200-yr time frame, but this:

    "During that 200-year stretch, the worst 20-year period for stocks produced a real return of 1% a year. For bonds, the worst period eroded half of investors' purchasing power."

  • Report this Comment On March 03, 2012, at 7:38 PM, tshk1221 wrote:

    Don't invest in stocks if you did not read several times Buffett's Buffetology and Nine Advices to Small Investors.

  • Report this Comment On March 03, 2012, at 10:11 PM, peterr54 wrote:

    Morality about "earning" money as opposed to "making" money underpins why I do not invest in stocks.

    If you realize how "flexible accountancy" practices have evolved over the decades to "color" corporate annual reports, then borrowing from future (and often fictive) assets to fund current (and often non- tangible) assets is immoral if not unethical.

    Then there are the rules that are changed at whim by the money institutions primarily, the inland revenue, the banks and the stock exchanges) to primarily protect them from culpability while exposing us to the risks.

    Furthermore, while the "average returns" on stocks outperform other less appealing investments, the truth is that only 3% of stock investors tangibly benefit from the huge returns which are "made". This is because it is necessary to be active in stock markets to profit from the daily sell and buy differentials (opportunities) which the stock traders create by volume trading manipulation.

    The effect of all this on price inflation rates, loan interest charges and currency devaluation is very well documented. The average Joe has not a chance in hell of understanding stocks and is just exposed to the longterm outfall of lower pension rights and eroding disposable income.

    When I hear the magic term "guaranteed positive return on investment" then I may change my mind. Until then I will remain skeptical about anyone offering me wealth advice.

  • Report this Comment On March 04, 2012, at 1:29 AM, kyleleeh wrote:

    <<Before Ms. Housel starts spouting further statistics about a dollar growing to fantastic amounts of money over more than two centuries, I suggest that she does the following: (1) set a more reasonable starting time, say 12th April 1995; (2) select an index as it stood on that date, say the ^DJIA; (3) account for the losses associated with every company that was dropped from the ^DJIA between 12th April 1995 and the current date; (4) account for the cost of purchasing sufficient shares in the company that replaced the company identified in enumerated item (3); (5) account for the transaction cost of sale and purchase of sufficient shares in each company to match the adjustment required by the formula used to compute the ^DJIA; (6) account for the spread between the bid price and the sale price for each sale and purchase identified in item (5); and, (7) account for the taxes, including income and capital gains, associated with the aforementioned sale and purchase and any dividends that might have been distributed during the holding time. Finally, I challenge Ms. Housel to rationally compare the result obtained according to the real world implementation of the ^DJIA as described above with results obtained by buying 10-year treasuries, or municipal bonds, over that same period of time>>

    When investing in a fund or ETF all of the things you mentioned are calculated into the funds expense ratio. It is something you need to pay attention to, and most good investors do.

    Also funds and ETFs don't pay capital gains to sell stock for re balancing purposes because the money doesn't belong to them in the first place. You pay capital gains only when you cash out of the fund.

  • Report this Comment On March 05, 2012, at 6:16 PM, mark516119966 wrote:

    3rd ave,

    I see your critical analyses of Ms. Housel doesn't include his gender.

    You should keep your money in bank cds to prove how right your are in a more reasonable time period of let's say 10 years.

    After your above average gains you won't need to concern yourself with these commentators because then you'll be one.

  • Report this Comment On March 13, 2012, at 1:58 PM, ballengerm wrote:

    Something I am always surprised by is how attractive much more risky investments can seem to those supposedly turned off by the risk involved in the broad stock market. I have heard the following statement multiple times almost word-for-word:

    "I'd like to invest, but I can't risk losing a lot of money on stocks that cost a lot. I've looked in to some penny stocks a bit, though."

  • Report this Comment On March 15, 2012, at 4:29 PM, donflip24 wrote:

    The stock market is like the casino, you could loose a lot of money or win a lot of money. The difference is the stock market is rigged in your favor and your the one doing the rigging.

  • Report this Comment On March 22, 2012, at 11:31 PM, thidmark wrote:

    "Folks, there is no survivorship bias within the S&P 500. The long-term returns cited include the impact of companies that suffered miserable returns and were eventually removed."

    It is both amazing and frightening that some people on an investing web site can't comprehend this.

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(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1795653, ~/Articles/ArticleHandler.aspx, 11/22/2014 8:09:21 PM

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