Dave's Thoughts on Investing

Everyone's talking about investing in single stocks, bonds, fixed annuities—and especially gold, all because mutual funds aren't performing as well as they have been.

Remember that just because something is all the rage doesn't mean it's good.

One of the best investing rules to remember is to only invest in something that has a good long-term track record. Who cares how much money you earn in interest in one year! Focus on the 20- or 50-year track record. Gold's long-term track record is crummy—the average lifetime annual growth of gold is only 2.14%. All of the money made by investing in gold has been since 2001.

In Jeremy Siegel's book Stocks for the Long Run, he reveals what would have happened to a single dollar invested in bonds, stocks and gold since 1801:

One dollar invested in bonds in 1801 would yield $13,975 today.
One dollar invested in stocks in 1801 would be worth $8.8 million today.
One dollar invested in gold in 1801 would be worth $14 today.

"In times of financial stress, in times of inflation, when there is fear for the [currency], gold does well," Siegel said. "Once the fears are past, gold goes back down." Why would you want to buy it at its peak price?

Many people think if the stock market collapses, we will use gold to buy things and survive. This is insane! Remember the aftermath of Hurricane Katrina. People bartered with essential commodities. They could not have cared less about gold.

Gold is a volatile, precious metal—it's flighty and can fluctuate sharply. You're much better off owning mutual funds and paid-for real estate. If you are beyond Baby Step 3 and want some gold, just save up and buy yourself a gold watch!

Just because we're in a bear market doesn't mean the stock market is on its way to collapsing! In order for the stock market to crash, companies like Microsoft, Ford, GM, Home Depot, GE and Whirlpool have to close their doors for good. Can you honestly imagine all of those companies closing? Our stock market operates differently now than in 1929; there are many more safeguards now. The people who predict stuff like this are doomsayers.

The best way to invest is to put your money in growth stock mutual funds that have good long-term track records. This is what I do. The stock market has averaged a growth rate of about 12% per year over the last 70+ years. That doesn't mean a solid growth curve of 12% each year is guaranteed. It means one year the market might grow 7%, the next year 10%, and the next year 19%. That comes out to 12% per year. Since you leave money in an investment for several years or even decades, odds are extremely high that you'll come out a winner!

Learn to invest the right way with a trusted investing professional in your town.