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When it comes to securing your financial future, it’s tempting to follow the crowd. Popular investment choices often seem like the safest bet. But are they? Today, we’re diving deep into the surprisingly misguided preferences many Americans have when it comes to building long-term wealth. Spoiler alert: the crowd might be leading you astray.
The most promising long-term investment isn’t necessarily the most popular. In the same way that popular foods aren’t always the best-tasting, popular investments aren’t always the most rewarding. A 2023 survey found that Americans’ least favorite foods included anchovies, oysters, beets, and blue cheese. Yet each of these has a devoted fanbase — and you might be among them. Similarly, the most common investments may not serve your financial goals as effectively as less popular choices.
Survey Results – The Popular but Not Necessarily Great Investments
A recent Gallup survey reveals Americans’ favorite long-term investments. Leading the pack are real estate, **stocks**, gold, savings accounts/CDs, bonds, and cryptocurrency. While these preferences might seem sensible, a closer look reveals a different story.
Editor's Note: Analysis and insight for this article were originally sourced sourced from our friends at Motley Fool
Real Estate (36%)
Real estate has its allure. It’s tangible, often growing in value, and seems like a safe bet. The survey shows it’s a favorite across all income groups. However, most people equate real estate investments with homeownership, which has its caveats. Homes are illiquid and subject to market conditions; you can’t sell off a room if you need quick cash. The average annual return for real estate is around 4.2%, significantly lower than **stocks**.
Homeownership, despite being an American dream, is more of a liability than an asset. Maintenance costs, property taxes, and the effort required to manage properties can erode potential gains.
Analyst Ratings and Forecasts for REITs:
| Metric | Value |
|---|---|
| Consensus Rating | Overweight (4.3/5) |
| Average Price Target | $84.41 |
| Potential Gain | 12.1% |
| Number of Ratings | 154 |
Summary of Analysts’ Outlook:
Analysts have a positive outlook on the Real Estate Investment Trusts (REITs) industry, with a consensus rating of Overweight (4.3/5). The average price target of $84.41 suggests a potential gain of 12.1% from the current market price. This optimism is driven by the industry’s ability to provide a steady income stream, its relatively low correlation with other asset classes, and the potential for long-term capital appreciation.
Stocks (22%)
**Stocks** may not top the list, but they should. With an impressive historical performance averaging an 8.4% annualized return, **stocks** have proven themselves as one of the best long-term investment vehicles.
While higher-income groups may lean more heavily on **stocks**, their benefits extend to all. The stock market’s potential for growth far outstrips other popular investments, allowing for substantial accumulation of wealth over time. The key is a diversified approach and a long-term commitment. Jeremy Siegel’s research shows that between 1802 and 2021, **stocks** grew at an average annual rate of 8.4%, reaching up to 11.3% during particularly prosperous periods.
Analyst Ratings and Forecasts for ETFs (Broad Market):
| Category | Consensus Rating | Average Price Target | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| ETFs (Broad Market) | Overweight/Moderate Buy | $143.15 (S&P 500 ETF) | 10.3% | 150+ |
Summary of Analyst Outlook:
Analysts generally have a positive outlook on ETFs, driven by their growing popularity, diversification benefits, and flexibility. The consensus rating is Overweight/Moderate Buy, indicating that analysts expect ETFs to outperform the broader market. The average price target is based on the S&P 500 ETF, which is a commonly used benchmark.
Gold (18%)
Gold, the shining beacon in times of economic uncertainty, is more revered than reality justifies. At only 2.1% annual returns, gold fails to match its perceived stability with actual performance. Despite its lure during crises, gold’s long-term returns simply don’t hold up against **stocks**.
Lower-income groups may favor gold for its perceived safety, but it’s a poor vehicle for growing wealth. Gold’s price fluctuates significantly, making market timing challenging. For those interested in gold, there are alternatives like gold **stocks** and exchange-traded funds (ETFs) focused on gold. However, these also come with their own sets of risks and typically do not outperform the stock market.
Savings Accounts/CDs (13%)
The low-return nature of savings accounts and CDs doesn’t seem to deter lower-income groups who value their stability. Yet, their potential for wealth building is dismal. With interest rates often barely outpacing inflation, these accounts are more suited for short-term needs rather than long-term growth.
Savings accounts and CDs can provide security for funds you need within the next five years, but they’re not going to build significant wealth. Their low return rates, averaging under 1.5%, cannot compete with more aggressive investment strategies.
Bonds (4%)
Bonds provide a lower-risk option with historical returns around 5%. They’re less volatile than **stocks** but offer considerably lower returns. Bonds can be integral for portfolio balancing, particularly for retirees or those nearing retirement. They act as stabilizers, not growth engines.
Jeremy Siegel’s research indicates that while bonds have historically provided a 5% return, this pales in comparison to the stock market’s performance. Bonds are useful for reducing portfolio volatility but shouldn’t be your primary investment if long-term wealth accumulation is your goal.
Cryptocurrency (3%)
Still new and highly speculative, cryptocurrency appeals to the high-risk, high-reward crowd. Despite its low survey ranking, its extreme volatility makes it a risky bet, unsuitable for conservative, long-term investors. The ride can be thrilling but also perilous.
Bitcoin and other cryptocurrencies can experience dramatic swings, sometimes gaining or losing 20% or more in a single day. This volatility makes them unsuitable for most investors who are looking for reliable, long-term growth.
Insightful Analysis of Stocks as the Superior Investment
Jeremy Siegel’s extensive research on historical stock performance offers compelling evidence for **stocks** as the cornerstone of long-term investment strategies. Since 1802, **stocks** have delivered an average annual return of 8.4%, hitting 11.3% between 1946 and 2021. This consistency in outperforming other asset classes makes **stocks** indispensable for substantial, long-term growth.
Consistent investment in a diversified portfolio can mitigate risks and amplify returns. Whether through individual **stocks** or diversified ETFs, **stocks** should form the backbone of your investment strategy.
Analyst Ratings and Forecasts for ETFs (Broad Market):
| Category | Consensus Rating | Average Price Target | Potential Gain | Number of Ratings |
|---|---|---|---|---|
| ETFs (Broad Market) | Overweight/Moderate Buy | $143.15 (S&P 500 ETF) | 10.3% | 150+ |
Analysts generally have a positive outlook on ETFs, driven by their growing popularity, diversification benefits, and flexibility. The consensus rating is Overweight/Moderate Buy, indicating that analysts expect ETFs to outperform the broader market. The average price target is based on the S&P 500 ETF, which is a commonly used benchmark.
Real Estate: Common Misconception and Better Alternatives
Real estate investment often gets muddled with homeownership. According to the Case-Shiller Index, the annual return on real estate from 1990 to 2024 has been approximately 4.2%, a minor fraction compared to stock market returns. Homeowners may feel secure, but they’re not necessarily building significant wealth.
For those drawn to real estate, Real Estate Investment Trusts (REITs) present a promising alternative. REITs trade like **stocks**, offering liquidity and often superior returns, making them a pragmatic choice for real estate enthusiasts. REITs allow investors to partake in the real estate market without the headaches of property management.
Analyst Ratings and Forecasts for REITs:
| Metric | Value |
|---|---|
| Consensus Rating | Overweight (4.3/5) |
| Average Price Target | $84.41 |
| Potential Gain | 12.1% |
| Number of Ratings | 154 |
Summary of Analysts’ Outlook:
Analysts have a positive outlook on the Real Estate Investment Trusts (REITs) industry, with a consensus rating of Overweight (4.3/5). The average price target of $84.41 suggests a potential gain of 12.1% from the current market price. This optimism is driven by the industry’s ability to provide a steady income stream, its relatively low correlation with other asset classes, and the potential for long-term capital appreciation.
Gold: The Misguided Perception of Security
Gold’s allure as a safe haven isn’t backed by its historical performance. With an average annual return of just 2.1%, gold fluctuates and often underperforms stable stock investments. The challenge with gold lies in its unpredictability and the difficulty of market timing, making it less reliable for consistent wealth building compared to **stocks**.
Investors often turn to gold during times of economic instability, but this strategy doesn’t hold up over the long term. **Stocks** consistently outperform gold, providing greater returns without requiring perfect market timing.
The Importance of Timing in Investments
Investment success heavily relies on timing. While volatile assets like **stocks** demand a long-term vision (ideally 5-10 years) to weather market fluctuations and yield significant returns, this timeline can’t be overlooked. Conversely, for short-term financial needs, savings accounts and CDs are more appropriate due to their stability despite low returns.
Investing with a long-term perspective allows you to take advantage of market recoveries after downturns. Short-term volatility is less concerning if your timeline spans decades. Patience and persistence are key to maximizing your investment gains.
Strategic Takeaways for Investors
Now, it’s time for some actionable advice. **Stocks** should be the centerpiece of any long-term portfolio, thanks to their proven high returns. For those seeking a diversified, low-risk approach within **stocks**, quality Exchange Traded Funds (ETFs) offer robust options.
Balancing your portfolio with bonds can provide added stability without compromising the growth potential **stocks** offer. The ultimate strategy aligns your allocations with your financial goals and risk tolerance, with an unwavering emphasis on long-term stock investments for real wealth building.
By extensively breaking down popular and promising investments, this article not only educates but empowers readers to make informed, strategic financial decisions. The crowd may have its favorites, but real wealth awaits those who dare to stray from the pack.