Question

If the average historical return on a stock market investment is 11%, why doesn’t everyone put their money into stocks rather than into a savings account?

Answer 1

When you invest in stocks, there are two ways in which you can make money:

1. the corporation distributes dividends to its stockholders, although dividends are usually a very small percentage of the stock price
2. you buy the stock at a certain price and you sell it later at a higher price

Dividends usually pay less than a savings account.

The price of stocks usually tends to increase over time, but the price of stocks increase or decrease daily. Sometimes the price of a stock can decrease for a relatively long period of time, a few years even. But generally the stock prices will rebound later. That is why investing in the stock market is usually a very good investment on the long run.

The stock market is a risky investment, while savings accounts are usually very secure investments.

Answer 2

Even though the historical return on a stock market investment is 11%, it is also riskier than a savings account. This is referred to as risk vs. return. The higher the risk an investor is willing to take on, the higher the potential return.