Battle of the Investments: Stocks, Bonds, and Real Estate
Stocks, bonds, and real estate—oh, my!
These are the three main classes of investments.
You may notice the absence of gold and Bitcoin. Gold actually has poor inflation-adjusted returns over time, and cryptocurrencies are too new to have established a track record across different types of market conditions.
Plus, one thing that gold and Bitcoin have in common is that they’re unproductive assets. You buy them and they just...sit there.
Stocks, however, represent partial ownership in a business. That business is [presumably] a productive enterprise that generates money by selling a product or service that people will pay for.
Bonds are loans to businesses and governments. The business or government entity uses the money to make improvements, which is [presumably] an efficient—and value-generating—use of that money.
Real estate provides installments of cash on a regular basis, because people need space to live, work, and store stuff. They will therefore make periodic payments to accommodate that need.
You’ll notice that stocks, bonds, and real estate are alike in that they actually do something to provide value to people.
Gold has some industrial uses, but its main uses have always been as 1) a store of value, and 2) a way to show off one’s wealth. Bitcoin has many aspects, but it’s best thought of as an experiment in deregulated currency.
You probably wouldn’t trade your money for a bunch of rupees, expecting it to rocket upward in value relative to the U.S. dollar. And India is an actual country with well over a billion people, people who live and work and buy stuff. And pay taxes. And have a military.
So why would you trade your money for a bunch of Bitcoin, expecting it to rocket upward in value relative to the U.S. dollar? Especially when it’s not guaranteed by a government, or tax revenue, or military force? Or supported by actual useful work?
Due to that reasoning, I’ve deliberately excluded nonproductive assets like precious metals (gold, silver, platinum) or cryptocurrency (Bitcoin, Ethereum, Ripple) from this analysis.
Remember also that a wise investor is concerned not only with rate of return, but also with preservation of one’s principal.
So let’s get started.
