The Wise Investor
5.4 A comparison of the three
We have looked at the three sectors in detail,"
John said, "and a brief comparison of the three will
First, we have the long-term profits from the
three sectors. Interest-bearing investments have the
lowest returns, property has moderate returns and
shares have the highest long-term returns.
This relationship does not always hold at a
particular point in time, but historical records show a
clear long term pattern in the profits from the three
It is not only history, either, which shows us the
difference in the returns, it is related to the
fundamental structure of the economic system.
Take property first. Everyone needs a place to
live, and so the value of property tends to remain
fairly constant in real terms over time.
Some areas will increase, and others will
decrease, and the growth in population tends to
drive all prices up. Overall, however, the real value
of property tends to remain stable or increase at a
very modest rate. If it didn't, then people would soon
be unable to buy a home, and the laws of supply and
demand would ensure that prices returned to
The very nature of property, then, tends to tie
down any extreme increases and decrease in value.
Always remember, though, that even if the price
remains constant in real terms, an investment house
will still return a profit from the rental income.
Now we look at the interest-bearing investments.