Question

To earn the highest interest rates and best chance to beat inflation, what should you do?

1) Invest in stocks
2) Invest in bonds
3) Invest in real estate
4) Invest in a savings account

Answer 1

Over time, the average return of stocks is higher than that of bonds, and the average return of bonds is higher than that of a savings account. So, the correct answer is option 2.

Step-by-step explanation:

Over a sustained period of time, stocks have an average return higher than bonds, and bonds have an average return higher than a savings account. This is because in any given year the value of a savings account changes very little. In contrast, stock values can grow or decline by a very large amount (for example, the S&P 500 increased 26% in 2009 after declining 37% in 2008).

The value of a bond, which depends largely on interest rate fluctuations, varies far less than a stock, but more than a savings account.

So, the correct answer is option 2.