Inflation
How to Write a Personal Loan Agreement
403b vs. 401k: What’s the Difference?
I know that you were losing sleep because I had not written a post yet that outlines the differences between a 403(b) vs. 401(k). Oh waitâ¦.you werenât? I thought everybody was a retirement tax code freak like me. ð Either way, you or someone you know may have the option to fund a 403(b) and […]
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2 Tax Credits That Will Be More Generous in 2023
What’s the best long-term investment?
What’s the best long-term investment? Because you’re a money nerd (and a GRS reader), I hope your answer to this question was, “Stocks!” If the future is anything like the past, that’s the correct answer. History has shown that stocks are the best long-term investment — and by a wide margin.
Unfortunately, most Americans believe otherwise.
As a part of its annual Economy and Personal Finance survey (conducted during the first two weeks of April), Gallup News asked 1017 American adults, “Which of the following do you think is the best long-term investment: bonds, real estate, savings accounts or CDs, stocks or mutual funds, or gold?”
Here’s how people answered:
- 35% of respondents said that real estate is the best-long term investment
- 21% said that stocks or mutual funds are the best long-term investment
- 17% said that savings accounts or certificates of deposit are the best long-term investment
- 16% said gold is the best long-term investment
- 8% said bonds are the best long-term investment
While acknowledging that past results are no guarantee of future performance — let’s take a look at why I think Americans haven’t got a clue when it comes to figuring out the best long-term investment strategy.
The Rate of Return on Everything
The August 2019 issue of The Quarterly Journal of Economics included a paper entitled “The Rate of Return on Everything, 1870-2015”. Over an astounding 74 pages of discussion, the authors attempt to analyze the long-term (145-year) rate of return on a variety of assets around the world.
The paper examines four popular investment vehicles:
- Bills, by which the authors mean Treasury bills, are short-term government bonds. At present, these are a good proxy for the rates you can earn with a high-yield savings account. (I don’t think this is always the case, though.)
- Bonds, which in this case refers to ten-year government bonds (such as a 10-year Treasury note).
- Equity, which is another way to describe common stock. Here, the authors are measuring overall stock market performance.
- Housing, including rental properties.
We’ll look at each of these in greater detail in a moment (and we’ll look at gold too), but for now let’s look at this paper’s overall findings. While the authors looked at data for many countries, I’m only going to share results for the U.S. The following table shows the rates of return for these different asset classes over three different time periods. (Remember that, for our purposes, Bills are a stand-in for savings accounts.)
From this table, it’s clear that equities (i.e., stocks) have been the highest return investments over long periods of time. Nothing else comes close. (Outside the U.S., this isn’t always true.)
Now, while stocks provide the best long-term returns, they also come with the greatest volatility. Here’s a a chart (Figure VII) from the paper that shows just how crazy the ride with stocks can be. (Also note how closely equities and real estate tracked each other until the Great Depression.)
It’s this volatility that scares so many people away from the stock market. They’re afraid that a sharp decline can come at any time. And that’s true. But what’s also true is that a prolonged bull market can occur at anytime, as we experienced from March 2009 to February 2020! If you’re a long-term investor, you don’t give a fig about short-term market movement.
Let’s dive deeper into the long-term investment returns provided by the asset classes in the Gallup poll: real estate, stocks, savings accounts, gold, and bonds.
Mortgage Rates Recover Slightly, But Thursday Could Bring Much Bigger Movement
Mortgage rates are based primarily on the prices and yields of bonds. Bonds take cues from several places, but always from inflation and the economy–at least to some extent. As such, economic reports (including those focused on inflation) can have an immediate impact on bonds and immediate implications for rates at the moment they’re released. The single most important economic report (as far as rates are concerned) will be released Thursday morning at 8:30am Eastern time. The Consumer Price Index (CPI) is the first, broad-based look at inflation in the US on any given month. It’s a report that has consistently had a bigger influence on rates than any other scheduled monthly data for roughly a year now. Economists submit forecasts to data aggregators like Reuters and Bloomberg. The median forecast becomes the market’s consensus and traders move bonds into position for those numbers, generally speaking. In other words, it won’t be a surprise to the market if annual inflation comes in lower tomorrow. The headline level (which includes all prices measured) is seen dropping from 7.1% to 6.5% annually. To reiterate, if 6.5% turns out to be the result, there’s no real implication for rates. If, on the other hand, inflation were to fall to 6.3% or lower, rates would likely fall sharply. If we see 6.7% or higher, expect a big rate spike. There are other inflation numbers in the report and, in fact, the market is more likely to focus on the monthly “core” CPI number which factors out more volatile food and energy prices. Other traders will look deeper still and subtract the “shelter” component (which measures the cost of housing) as it can be a big stick in the mud that obscures the underlying trends in prices.
Optimism spreads across the mortgage industry at the start of 2023
The mortgage rate for 30-year fixed loans declined to 6.33% this week, down 15 basis points compared to the previous week.
30-Year Fixed Mortgage Rates Jump 10 Basis Points
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on…
Will Mortgage Rates Go Up in January 2023? – Bankrate.com
Will Mortgage Rates Go Up in January 2023? Bankrate.com
$37000 a Year is How Much an Hour? Good Salary or No?
37k salary is a solid hourly wage; above most minimum hourly wage jobs. For most people, an entry-level job would be paying…
Read More… $37000 a Year is How Much an Hour? Good Salary or No?