Q&A by Don Bright
WHAT IS THE BEST INVESTMENT?
Recently, I inherited some money and
have been deluged with people offering
me great advice on how to invest
this money. I don’t really understand
the markets very well, but I was given
your name from a friend in hopes that
I could learn more.
I have been reading that the stock
market has been growing at rates from
5–12% or even more. Brokers tell me
that long-term stocks are the best investments.
I realize they make their money
from investors who buy and sell stocks,
so I have to question their motives.
I was told to look into mutual funds
as well. There seems to be hundreds of
different funds sold by many different
Can you shed some light on the numbers
above? Do you have any suggestions
for me? I don’t need income or use of this
money for some years. – Cesarsghost
Your questions remind me of my seven
years of doing our radio show, Stocktrading
With The Bright Brothers. Even
though we focused on trading stocks for
a living, we would always do our best to
answer all questions asked. You are right
about brokers or investment advisors;
always do your own due diligence.
First off, let me explain a bit about
“returns” and “growth.” There are many
ways to determine if the overall market
pays off more than inflation. Let us start
with the Dow Jones Industrial Average
(DJIA). This index consists of 30 largecap
equities. Those equities determine
the average value to get the index value
– and this can be tricky. Of the original
30 stocks in the DJIA, I believe only one
(GE) is still in the DJIA. The components
are changed periodically; some call this
“replacement accounting.” So if you had
invested in all 30 original stocks, you
would not have much left today.
The same thing applies to the S&P
500 stocks, except that the S&P has 500
large-cap stocks vs. only 30 for the DJIA.
This index is controlled by Standard &
Poors, and they too replace symbols from
time to time. So it is doubtful that the
overall markets have returned anywhere
near the numbers you were told.