- Over the past couple of decades, the stock market has created billionaires, multi-millionaires, millionaires & lots of people who have retired by investing in the stock market. The stock market is the easiest way to invest, protect & multiply your money. Investing in stocks is an art of science.
“Investing in stocks is an art, not a science & people who’ve been trained to rigidly quantify everything have a big disadvantage”
Peter Lynch
Why the Stock Market?
- The stock market is a place where small & large businesses list their shares & as retail investors we can buy some portion of these businesses. First, let us see what assets that we can invest. We can invest our money in stocks, gold, bonds, real estate, cryptocurrency, and personal businesses.
Gold
- The problem with gold is that gold is not a productive asset class. Gold does not produce anything. Once you buy a farmland it will give you corps every year. But once you buy your gold 10 years ago even today the gold remains. This means gold does not give you cash flow for your investment. Gold is just a hedge against inflation. Just by investing in gold, you cannot become wealthy over time. Warren Buffett has explained this thing clearly.
“ I would say that gold would be way down on my list as a store of value. I mean, I would much prefer owning a hundred acres of land near here in Nebraska or an apartment house, or an index fund”
Warren Buffett
Bonds
“People worry about the riskiness of stocks, but bonds can be just as risky”
Peter Lynch
- When it comes to investing in bonds investors have different approaches. Warren Buffett keeps his extra cash if there is no eligible investment to make in bonds. When there is a stock market crash & everyone is trying to sell their stocks that’s the moment Warren takes the cash from bonds & invests in stocks & businesses.
- But as retail investors investing in bonds is not a good investment to make. As Peter Lynch mentioned in his book Beating the Street Investing in Bonds. The main problem with the bond is inflation.
- Inflation is when prices of goods rise across the economy. So, a basket of goods that you could buy for $10 last year might cost you $12 under inflationary conditions this year. As bonds pay fixed rates of interest throughout the lifetime of bonds it is not a good asset class against inflation, especially against a hyperinflation environment.
Real estate
- Buying real estate is not easy for small investors. It costs some money at first. Buying a farmland or apartment as an investment is very safe & stable. But everyone cannot start their investing journey by investing in real estate.
Cryptocurrency
- Crypto is not an asset class. This asset class has only 15 years of history. When Satoshi Nakamoto invested Bitcoin from 2008 to now it’s only 15 years. We have only a very small track record of this investment. Some value investors like Warren Buffett don’t agree with Bitcoin & young investors like Chamath Palihapitiya & Cathie Wood heavily invest their money in cryptocurrency.
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