Stocks & Commodities V. 31:10 (51): Q&A by Don Bright

Stocks & Commodities V. 31:10 (51): Q&A by Don Bright
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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 brokers.

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.




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