Jonathan’s Parting Thoughts: No. 9

If stocks don’t win, everybody likely loses.

Stocks are a gauge of the global economy’s health. Are share prices in a multi-year slump? The world’s economy must be in the dumpster—and that’s bad news for all investors.

Conventional wisdom says we can avoid stock-market mayhem by hiding out in bonds and cash investments, and that’s usually true. But if economic growth stalls out or even reverses for multiple years, it won’t just be stocks that suffer. Corporations, banks and even governments may struggle to make interest payments on the bonds and cash investments they’ve issued. That’s why I’ve often described stocks as “heads I win, tails everybody loses.”

If the economy remains healthy, stocks should notch healthy gains over time. What if the economy starts contracting? I can’t imagine that the world’s governments would allow that to persist for very long, and it’s one reason I’ve long been a huge fan of stock-market investing.

That said, I have no idea which countries and business sectors will post decent growth in the years ahead. That’s why I’m an advocate of diversifying a stock portfolio as broadly as possible. That way, investors can capture the stock market’s gains, no matter where they’re happening.