People who invest in cash and fixed interest investments for long-term periods effectively loan their money to someone else (e.g. a bank) so that they can use it to make long-term profits from their customers.
Others who choose to invest in shares or property become owners of income-producing assets and share in those long-term profits.
For the last 18 years since 2000, if you take into account inflation, investments in Australian Shares and Direct Property have produced over three and a half times the returns from Cash investments.
These excellent long-term returns have occurred despite the whole planet suffering the worst globally co-ordinated financial crisis since the great depression years.
Owners of income producing assets understand that they will endure temporary negative returns in markets every few years. Their reward for doing so is that over the long term they will generate long-term returns much greater than loaners will.
When markets are down, financially successful people buy (shares or property) from impatient investors who are choosing to sell (shares in some of the great companies of the world or great property for less than they were worth when markets were up). When markets recover – and they always do! – long-term investors will reap the benefits of temporary down markets.
The secret to investing money is simple. Any money required to be spent in the next few years should be left in cash. Long-term investments (including super) can afford to be invested in income producing assets such as shares and property because you have the time to ride out short-term periods of negative returns.
For long-term wealth creation, be an owner not a loaner.