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Survey says: Do your financial homework

May 9, 2012
ImageBefore I joined NJC, I worked at The Gallup Organization training survey researchers — those folks who call you at night to ask which presidential candidate you will vote for.

Since working at Gallup I have been interested whenever I hear results of a new Gallup poll. A recent poll about investing really caught my attention. 

You may have heard of it: Gallup asked Americans where they should put their investments. The No. 1 answer, with 28% of respondents’ answers, was gold. Secondly was real estate with 20%, and stocks and savings accounts each received 19% of the votes. 

An even smaller percentage of those under 30 who answered said stocks are the best place to invest. The percentage of people investing in the stock market through individual stocks and mutual funds has decreased as well: In 2002, 67% of respondents said they had money in the market; today, it is only 53%.  

Based on historical averages, these responses are wrong in so many ways. Over the past 75 years, the stock market has averaged around 10% growth each year, while stocks of smaller companies have averaged around 12% a year. During that same time, bonds returned just  more than 6% a year, and gold returned just less than 6% a year.

No one knows if these trends will continue, but most major personal financial planners believe you should put long-term investments in the stock market. 

Today, through an S&P 500 mutual fund, I can own an investment that will track 500 of the largest companies in the U.S. These are companies that are making products and providing services all around the world. As technology increases and billions are lifted out of poverty over the next couple of decades, I believe this is a good bet.

If I invest in gold right now, in 20 years, I have gold. I didn’t buy something that produced any product or service, or sold anything. 

Some believe that if the world economy completely falls apart, then gold will be good to have. But this hasn’t been the case in the past. When economies fell apart, people weren’t accepting gold; they were bartering for important items such as clean water, food and other essentials. 

If I thought the world’s economy was going to completely explode, I would be in the market for guns, canned foods, gasoline and water. 

Besides having gold lead the pack, it also is concerning that just as many people would put money in a savings account or a CD for an investment as would place the money in stocks. 

If you are saving for something in the short term or building an emergency fund, savings accounts, money market banking accounts and CDs are the best place for your money. With FDIC protection, up to $250,000 will be insured, and you will not lose money.

However, if you are saving for the long term, these investments are terrible. With almost all savings accounts currently paying less than 1%, your investment won’t even stay up with inflation. As prices continue, and will continue, to rise over the years, you need a long-term investment that increases your purchasing power.

Don’t be afraid of not following the pack. In 2009, only 15% of Americans said stocks were the best place to grow their wealth. Since the end of 2008 to the beginning of 2012, the S&P 500 rose close to 40%. Gold has been a hot investment in the past five years, just like it was in the late 1970s and early 1980s, before it lost almost half its value and took nearly 20 years to recover.

When looking at your retirement investments, do your own homework. Look at historic trends as well as how the world has changed. Talk to a wide variety of financial experts in a variety of areas. 

Don’t trust the wisdom of the masses, because when it comes to investing, they are frequently wrong. Study what has worked over decades, not years, and then come up with your own plan. You don’t need a Gallup poll to tell you the best way to provide for your future.

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