One of the biggest misconceptions in the United States economy is the state of the stock market. Many people base their faith in the economy on the performance of the Dow Jones Industrial Average (DJIA), often times because it has been publicized as the primary indicator of the direction of the market. Unfortunately for your average person, the DJIA is hardly as much of an indicator of the economy as it is hyped to be. The DJIA is a price-weighted, averaged listing of 30 companies, and is misrepresented as the whole market. In fact, not only is the DJIA an inaccurate indicator of the United States economy, but many experts argue that it isn’t even the most effective gauge for the health of the United States Stock Market. That title truly belongs to the Standard & Poor’s 500 Index (S&P 500). The S&P 500 is an index of 500 stocks, selected based on a number of factors: market size, liquidity (how easily a stock can be traded without affecting its price), and which industry it operates within.
So why shouldn’t you invest in the stock market? In order to understand this, it’s necessary to understand what it is. The stock market is, essentially, where shares are issued and traded to allow companies access to capital. It additionally provides investors with the belief that they are receiving an owner’s stake in the company so that they may receive a share of future earnings. In reality, though, the investor is receiving an unsubstantiated, un-backed promise based solely on the success of a company. Worse yet, since the stock market is driven by human interaction, the investor is almost always manipulated by the company’s executives, who have access to sensitive insider information.
In a heartbeat, a stable, multi-billion dollar corporation can hit rock bottom, leaving its investors in many cases with nothing to show for it. For example, in August of 2000, energy giant Enron (which had revenue in excess of $100 billion USD) had its stock peak at $90 per share. By the end of November of 2001, it was worth $0.61 per share. Here is the biggest pitfall with investment into the stock market: the worth of something deemed so valuable can literally become worthless. The saying of the stock market being this “high risk, high reward” place of investment still doesn’t hold, especially if you compare its performance relative to other areas of investment. Such an area includes gold, which is often mistakenly looked at as simply a safe investment with no high reward potential. Attached below is a simple chart outlining the performance of gold compared to the S&P 500, which clearly tells a different story:
Analyzing this graph, we learn two very important things. First, gold outperforms the S&P 500—the primary stock market indicator—by an amazing margin. Second, the stock market may not be as much of a “high risk, high reward” investment, leaving it only as a “high risk” investment. The bottom line is this: gold cannot ever be worthless, and it continues to outpace other areas of investment. It is always a good idea to buy gold.
Where should you invest your money, then? First and foremost, never put all your eggs in one basket—a diverse portfolio is always the smartest route to take. One of the best ways of diversifying your portfolio in such a way that ensures it always retains value is by investing in gold and other precious metals. Call United Gold Group at (800) 615-1513 today and talk to one of our Senior Account Executives to get on the right track to protecting you and your family for the future.
No comments:
Post a Comment