If you ask an investor ”why did you buy share XYZ” the most common answers are: ”I think the price will go up” and/or ”they pay a good dividend”.
In general, we dare to say that shares have outperformed most other investments in the long run. When you buy shares, you own a piece of a corporation, and depending on the type of stock you bought you may have the right to claim part of the assets and earnings of the company.
Stock owners do not own the company, a company for example owns an office or a building or chairs and tables these items do not belong to the shareholders. This distinction is important because imagine this: if a shareholder goes bankrupt, he can never sell the ownership of the company to pay off his/her creditors.
Another important reason for people to invest in stock or shares is the high scale of liquidity. Basically buying stocks enables you to sell your investment on a daily basis imagine that when investing in bricks and mortar, selling real estate can be a pretty difficult task
Also investing in stocks is subject to very low costs, investing in shares costs you on average between 0,06 and 0,10% per annum. Compare that with lawyer-notary costs when investing in real estate you are talking about almost 10-20%.
There are different opinions about which investments provides the best return, as ”everyone” knows, the yield on your saving (s) is nearly 0%. Some banks even started to charge money for your savings. In addition, the most common investments are the stock market and the housing market. The believe about which investment brings the best return is divided.
So which investment has given the best return over the last years?
From 1968 to 2009 the average rate of appreciation for existing homes increased around 5.4% per year. Meanwhile, the S&P 500 averaged an 7.5% return: small cap stocks averaged 11.5 % per year. The rate of inflation was around 4.6%
But there aren’t many investors with an 84-year (1968-2009) investment horizon. So let’s take a different time period: the 38 years between 1975 and 2013. A $100 investment in the average home (as tracked by the home price index from the federal housing finance agency (FHFA)) in 1975 would have grown to about $500 by 2013. A similar $100 investment in the S&P500 over that time frame would have grown to approximately $1600.