A recent Gallup poll asked Americans to rank long-term investments based upon what they thought was best, including real estate, gold, stocks/mutual funds, savings accounts/CDs and bonds. The majority of Americans, 34%, choose real estate as the best long-term investment from those options. Coming in second place, at 26% is gold – leaving stocks in third place at 18%. Savings accounts were in fourth place at 13% while bonds trailed last at 7%.
Keep in mind that this poll is just the perception that most Americans have regarding what is the best long-term investment. These numbers illustrate that most Americans think that their home is a better long-term investment than their stocks are, and that even gold is a better investment than stocks.
How Perception Compares To Reality In Investing
We can take a look at how perception compares to reality in investing by using the MSCI All Country World Index to compare the above poll with real-world data from the stock market.
The data runs from 1/1/2010 through 12/31/2022. Below are the indexes for each asset class:
- Stocks – MSCI All-Country World Index Total Return Index
- Bonds – Bloomberg US Aggregate Index
- Gold – S&P GSCI Gold Index
- Cash – Bloomberg US Treasury Bills 1-3 Month
As you can see in the chart, stocks still outperformed the next closest category, real estate, by nearly 3 fold. So why is there such a disconnect between the perception of stocks being a poor investment vehicle for the long term, when in reality they tend to outperform other long term investments?
First, stocks are volatile and they’re in your face in the news constantly. The drastic fluctuations may scare many people off. This also means that they can be often misunderstood.
Secondly, investors are bad at investing. They react with emotion and make rash decisions with poor timing, or try to time the market. They take vehicles intended to be long-term investments, and use them to make short-term plays.
When it comes to the reality versus perception of investing for the long-term, it helps to take an unbiased approach and look at the data, and then to take a step back and get out of your own way.
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