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Protecting Your Wealth in Good Times and Bad Chapter 8

Chapter 8 Investment Choices: Stocks. The road to a secure retirement starts by establishing a savings account and developing a plan to fund the account on a regular basis. Once an account is funded, the money should be placed in investments that will grow more than the rate of inflation over the years. | Chapter 8 Investment Choices Stocks To achieve satisfactory investment results is easier than most people realize to achieve superior investment results is harder than it looks. Benjamin Graham T he road to a secure retirement starts by establishing a savings account and developing a plan to fund the account on a regular basis. Once an account is funded the money should be placed in investments that will grow more than the rate of inflation over the years. To achieve long-term inflation-adjusted growth most people look to the stock and bond market as their primary investments of choice. This chapter focuses on stock investing and explains why index mutual funds are one of the best choices for achieving satisfactory returns in the stock market. Stocks A Partner in Business There are only two ways to invest your money. First you let someone else borrow your money for which they will pay you a user fee known as interest. Second you can purchase an asset at one price and sell it at a higher price. 120 Copyirght 2003 by The McGraw-Hill Companies Inc. Click Here for Terms of Use. Investment Choices Stocks Sometimes the assets you purchase also earn income that can be paid out to you periodically in cash. For example if you buy antiques coins or a stamp collection the only way to make money is if you sell those assets for more than you paid. But if you invest in rental real estate or another business the business may generate a profit for which you are entitled to your fair share and depending on profitability and outlook of the enterprise you may be able to sell your share of the business for more than you paid. Buying the stock in a company is a way of investing in that business. As part owner when the company earns money some of that profit belongs to you. However you cannot demand that the earnings be paid out in the form of a cash dividend. Some companies retain all earnings and reinvest it in projects or buy new business. Others use part of the earnings to buy back