Do you want more money or less?
If more, invest in assets that return the most. It’s simple.
Now what returns the most…
Savings accounts? Definitely not.
Gold? Nope, gold barely keeps up with inflation. Folks pay great amounts to dig it out of the Earth. Then the majority of it sits in safes that folks pay to protect. It doesn’t add value.
Bonds? Not U.S. bonds. The U.S. 10-year bonds have returned on average about 5% each year.
Land? Getting warmer. Land is an asset that creates value. Although it’s not easy for most folks to invest in. Property taxes, maintenance and other fees eat away at long-term returns.
Stocks? Bingo. Stocks have returned about 8% on average each year. And anyone with a few dollars can invest in stocks today.
You should invest 100% in stocks if you won’t need the money for at least 10 years. Perfect for many retirement accounts.
But if you know you will need the money in a few years, stick to less volatile assets. Savings accounts and bonds for example. But as a tradeoff, you will have lower returns.
Stocks are volatile in the short-term. The average bull market lasts just over three years. And a bear market lasts about one year.
With a long investment timeframe, you can wait for an aging bull market to start taking money out.
The 100% stock strategy is focused on returning the most over decades. Folks that plan many years ahead are often better off.
Still with an all-stock strategy, you should keep an emergency fund in cash. Surprise expenses might pop up. And if you only held stocks, you might be forced to sell during a bear market at lower prices.
Smart investors don’t only focus on the next few years. They look for the best ways to build their wealth over decades. And owning stocks is a great long-term strategy.