'The best gains': Suze Orman says this asset class has a long-term record of 'earning more than inflation' — how invested are you?

Chris Clark
'The best gains': Suze Orman says this asset class has a long-term record of 'earning more than inflation' — how invested are you?
'The best gains': Suze Orman says this asset class has a long-term record of 'earning more than inflation' — how invested are you?

As inflation pinches pocketbooks and makes it harder to cover the cost of essentials, many Americans are smartly turning to high-yield savings accounts as an effective, if conservative, way to secure and grow their money.

But just how smart is it? Personal finance expert Suze Orman has some straightforward advice: Stay with stocks.

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Even as the Dow, S&P 500 and Nasdaq rise and dip with anxiety-inducing volatility, Orman contends the stock market offers a more direct path to building wealth. Cash and bonds are safe, but they often fall short of keeping up with inflation, which means your wealth isn't growing in terms of value.

“Over the long term, stocks have produced the best gains after factoring in inflation,” Orman blogged in 2021. “Bonds and cash struggle to keep pace with inflation; only stocks have a track record of earning more than inflation.”

She wants to assure stock skeptics that investing in the market remains the best way to deal with inflation. The nature of stocks means high real returns, which are earnings on investments after inflation and taxes. Other savings methods such as bonds or cash don’t account for the rate of inflation, which equals lower returns versus stocks.

Orman explains that even in periods of poor market performance the S&P 500 often outpaces today’s higher-yield savings accounts.

Now that we’ve laid out Orman’s reasoning for why you should invest your leftover pay in the stock market, let’s talk about how. Here are some ideas to consider if you’re ready to start investing in stocks.

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Buy blue

Stock investments in established “blue-chip” companies offer a great start for the investment beginner. With a market value of more than $10 billion, these stable companies serve as a lower-risk investment option. Examples of blue chip stocks currently include companies once considered high-tech growth stocks, such as Apple, Microsoft and Amazon. The S&P 500 contains a full index of large-cap companies.

Practice makes perfect

To gain market acumen, test your risk tolerance without putting real skin in the game. Many brokerages provide paper trading or virtual accounts that simulate stock trades. This can be a fun and eye-opening way to get comfortable with stocks before investing actual money.

Since paper trading functions alongside legitimate capital, you can easily translate your practiced investment decisions into the real thing. Paper trading, paired with a financial adviser, can provide you ample education and strategic investment practice.

Diversify, and consider mutual funds

You’ve likely heard this term before: diversify. Even when working with a small amount of money, spread your investments over several stocks to distribute your risk and protect against big losses.

Instead of individually investing in different companies, which can be daunting for beginners, consider exchange-traded funds or mutual funds. These provide instant diversification through holding a basket of stocks or other assets. They’re accessible and affordable, with low minimum investment requirements and fees. What’s more, they’re managed by professional financial institutions, which takes away the stress of decision-making.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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