Economy & Investment II

Remember what Warren Buffet, the second richest man in the world, once said? He said he started investing in stocks at the age of nine, and he thinks that was too late. That may be a little exaggeration, but I believe it emphatically tells us the power of investment in stocks. The rich do not get rich by their salaries. They get rich from investments. So anyone who wants to be rich should know how to invest, especially in stocks. Why stocks? Very recently, Warren Buffet reiterated his preference for equities as investment instrument over gold, bonds, real estates or any others. I agree with him. Historically, the return on stocks on average is far outpaced the return on precious metals, bonds, or real estates. This trend will continue as long as the capitalist economies exist in the world. Companies make things people need, and thus create values. Those values are translated into stock prices.

On the other hand, gold does not create value. It is not something that people need for survival. Although gold price has skyrocketed during the last couple of years, it will not continue its upward trend. Although the demands for gold are real and expected to increase, they are not going to be robust in the end. People are not fools. They know what has real value and what does not. Investing in gold or precious metals does not contribute to economic growth, as Warren Buffet said, because they do not generate the output that people need. Bonds are for safe havens. Even Warren Buffet said he holds some. But he added that that is because for immediate liquidity purposes. In other words, when he needs cash, he can safely (without loss) sell the bonds. That makes sense. Real estates are not an investment instrument. Buying a first home is very encouraged for multiple purposes, but one should not be tempted to add more. That would be a drain of investment fund. As almost all stock investment advisers would say, one should look at a long term when making investments in stocks. One can delegate the investment role to a broker or choose to invest into an individual retirement account (IRA). Whether one makes little money or a lot, one has to set aside a portion of the income for investment on a regular basis. The money will grow.