Stocks vs. Other Investments: Common Wisdom

Common Portfolio Wisdom – Do Stocks Always Outperform Other Investments?


Stocks always outperform other investments.


Is that true or not? It’s kind of one of those common portfolio wisdom things that everyone has heard and kind of takes to heart. 


But the fact is, it’s really a half-truth. We live in a world where there’s unfortunately a lot of half-truths, and this is one of them. 


Let’s think of it this way, if we really want to go back to the beginning of the stock market until now, then it is true. 


Stocks during that period have outperformed any other investment.  


Average Stock Market Return

There’s a lot of gurus out there that will say, hey, if you own an index, if you own stock, and when I’m talking about stocks, we’re going to group mutual funds and ETFs in there together because what they are is really owning a big group of stocks, right? They’ll say you invest in this, then you’ll make 10% in the stock market, which does 10% every year on average. 


One of my quote-unquote favorites talks about a 12% annual rate of return. Okay, that hasn’t happened. If we go all the way back from the beginning, yes, we can probably go and say that it averaged 10% a year. 


As far as 12%, there are specific funds over specific periods that have averaged 12% rate of return, but here’s a really important key; the average rate of return as it relates to stocks or mutual funds is not always the real rate of return.  


The average rate of return might not be the real rate of return. 


For example, if I have $100 and I invest it and I make 100%, I have $200. 


Let’s say the next year I lose 50%. I’m back at $100.  


Let’s say that repeats again for the next two years, so I gain $100 and then I lose $50. So, at the end of the period, I started with $100 and I ended up with $100, yet my average rate of return is 25% because I was up to 200% down 100%. 


So, I’m up a total of 100% / 4 is 25%, so the average rate of return is 25%. 


However, my real rate of return was zero.  


So again, the average rate of return is not always the real rate of return.  


This is one thing that’s always important to consider when we’re looking at the returns of funds or stocks. 


Should I Have Stocks In My Portfolio?

Here is the flip side to saying that the stocks always outperform and that is it depends on the time period. 


If you remember what we called the lost decade, which was 2000-2010, stocks did not outperform.  


In fact, they underperformed. A CD would have gotten you a better rate of return over that 10-year period in most cases. 


Most fixed investments would have outperformed stocks during the lost decade. 


The truth of the matter is stocks have outperformed over the history of the stock market. 


But let me ask you, what is your time frame for investing? Do you have the next 70 years to put something in to see what you average?  


Or, do you need that money for retirement sooner? Do you need it to be able to create income or just to have it there if you need it?


You might not have a time frame. Actually, most of us don’t, therefore, stocks are a great place to add fast, but not all the time, right?  


What Are The Best Investments?

It depends on what you want and what’s important to you. 


Whether it’s retirement income or having some safety there, or whatever else that might determine how much you have in the stock market at any period.  


The next thing to look at is what’s going on in the economy in the market. 


You don’t want to leave it forever. Yes, it might always come back, but your timeline might not be there. 


Stocks are a great place to invest, just not for everything and not all the time. 


You need to be agile moving between the different investments and different strategies that are working based on the economy we’re in. 


Common Portfolio Wisdom – Do Stocks Always Outperform Other Investments? That’s something that’s hard for you to do individually, but that is what we do, and that’s what our portfolio manager does. 


So, if you have any questions about your current investment strategy and whether you have the right mix of stocks or where the stock market is, and if it will outperform in the long run, give us a call for a review.  


At Bertram Financial we always review what you have and if what you have is good, it will be obvious and you’ll feel more confident in knowing that. 


However, if there are any issues or if there’s anything we think you should look out for, you need to know so that we can fix it for you. 


Schedule a call with us. We’re happy to go through it and remember, stocks are a great place to invest, but not all the time. They don’t always outperform. It really depends on the time frame you’re looking at. 

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