If you're investing in term deposits or savings accounts, you're never going to get rich. At least not when they're paying 3% and inflation is as high as 2.7%! It doesn't take an analyst to know that.
But it's not all doom and gloom. If you're prepared to go it yourself and take your finances into your own hands there is no reason why you can't get more bang for your buck, even with interest rates so low.
As an example, from January 1900 to 2012 the Australian stock market returned an average of 11.8%. Turning $1 into $280,657 versus a $204 return from keeping money in cash accounts!
Now, it's obvious, not many of us are going to invest (or live) for 100 years but, then again, not many of us are going to put $1 into shares.
A tough act to follow
No doubt earning 11.8% p.a. is quite impressive but that was just the market's average. Now imagine if you outperformed it for a considerable amount of time. The rewards would be even greater and it's not unthinkable to imagine that you couldn't at least match the return of the market, even in your first few years.
However, if you are new to the stock market, what's important is diversification. That is, buying into a variety of companies of different sizes from various sectors. It's one way to mitigate the risks of the stock market. For example, you may choose some dividend stocks, growth stocks and a mixture of mid-cap stocks.
Here's one of each to get you started.
Dividends – Telstra Corporation Ltd (ASX: TLS)
Perhaps no surprises here but Telstra pays one of the most reliable dividends on the market. Currently yielding 5.6% with 100% franking and continually increasing its annual profits, it's one of the "safest" stocks in S&P/ASX200 Index (ASX: XJO) (^AXJO).
Growth – Cash Converters International Ltd (ASX: CCV)
Cash Converters, like Telstra, dominates its industry. It has a niche but commanding market position which is growing both organically and acquisitively in Australia, New Zealand, UK and South America. It also pays a reliable dividend.
Mid-Cap – Transurban Group (ASX: TCL)
Transurban is a toll road operator behind names like Hills M2, Lane Cove Tunnel, Citylink and a handful of operations in Virginia, USA. It has one of the most reliable business models available on the market. Betting on rising toll prices is about as safe as betting MacDonald's will sell you a Big Mac. It currently yields 4.6%.
Foolish takeaway
With property prices rising precariously higher and term deposits offering sub-optimal returns on your investment, perhaps it's time you start to take a look at what's on offer in the share market. Particularly when there are free step-by-step guides, it might be easier than you think.
