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Lesson 2. Why You Should Invest in Stocks - Pg. 10

10 Chapter 2. Why You Should Invest in Stocks In this lesson you will learn about the advantages stocks have over other investment vehicles. Stocks Rock! There is no shortage of things in which to invest your money. So why choose stocks? Quite simply, because stocks are your best bet. Since its inception, the stock market has consistently delivered the best overall returns when compared with the returns of investments like real estate. Since the purpose of investing is to watch your money grow, the logical choice is to place your money where it has the best chance of doing that. Tip Many of the skills you will learn to determine whether stocks are the appropriate investment vehicle for you will later be the same skills you will use to select stocks--you will be able to compare stocks' returns, assets, and liabilities with other available investment options, for example. There are, however, mitigating circumstances and characteristics that may make other investment vehicles seem attractive as well. Other investment vehicles you might consider are ... · Bonds · Cash · Mutual funds When comparing or considering these vehicles as investment options, be aware that as their meth- ods of producing returns differ, so, too, do the individual risks associated with each vehicle. Stocks vs. Bonds Stocks and bonds go together like peanut butter and jelly or macaroni and cheese. This is meant to imply that to a certain extent you should buy some bonds. But, if you are trying to decide between purchasing a share of stock or purchasing a bond, you should probably go with the stock. The return for stock averages about 12 percent, whereas the average return on a bond is only 5 to 6 percent. The following table illustrates the approximate annual returns by asset class since 1926. The overall average inflation rate has also been provided as a reference upon which to base their profitability. Asset Class Small cap stock Large cap stock Corporate bonds Government bonds Treasury bills Inflation Average Annual Return 12.4% 10.3% 5.6% 5.0% 3.7% 3.1%