One investment has ruled them all.
But before we dive in and look more closely at the #1 investment in the recent history of UK financial markets, I want to reflect on a headline I read on Yahoo! Finance last month:
“Smart Money” Indicator Most Bearish In 16 Years
I won’t regurgitate the points of the blog post, except to say that it detailed how the put/call ratio of S&P 100 options traders indicates that the “smart money” investors are bearish on the direction of the market.
Since the bull market rally began six years ago — and it’s hard to believe it’s been six years since the bottom! — I’ve seen this sort of post regularly. I even know the formula: bold claim supported by charts with arrows purporting scary things ahead.
Now, I’m not saying the market won’t turn bearish in the short term. To be perhaps brutally honest, I have no idea where the market is headed in the next few months or even years. I’m not a market forecaster (and even if I was, market forecasters have very mixed track records!).
After all, it’s scary out there. There are any number of variables (known and unknown) that could drag our domestic market down — the Eurozone crisis is the most obvious. US and international markets are no different…
Now, about that #1 UK investment option…
But here’s the thing. The single most useless word in the investor’s dictionary is uncertainty. Let me explain.
There is a lot of uncertainty in the air at the moment — geopolitical, domestic, environmental — but I challenge you to think of a time in recent history when that wasn’t the case.
From World War 1 to World War 2 to the Cold War to, heck, even Y2K, the world has always been uncertain.
And yet, according to the Credit Suisse Global Investment Returns Yearbook 2015:
“Over the last 115 years, the real value of [U.K.] equities, with income reinvested, grew by a factor of 367 as compared to 5.9 for bonds and 2.8 for bills.”
If you haven’t guessed it by now, the headline above refers to stocks — they have been the absolute #1 investment to own in the UK. From 1900-2014, stocks thrashed bonds and bills — by an order of magnitude!
To put it plainly, history shows that you must own stocks. That’s a core tenet of The Motley Fool.
Over the next century, UK stocks may not have the same run that they’ve had in the past. But history shows: stocks beat bonds and bonds beat cash. In fact, of the 23 countries tracked since 1900, the Credit Suisse report shows that stocks outperformed bonds and bills in 22 of the 23 countries. (The one exception is Communist China.)
A well-diversified portfolio owns bonds and bills as well — more so as you approach and enter retirement — but the historical record is unambiguous in highlighting why investors must own stocks.
