When making a decision to invest a cash lump sum, it is worth considering how the worlds wealthiest 1% behave and what we can learn from them. Property and shares are often two key investment considerations.
According to Bloomberg, the message from studies in Sweden and the United States is clear – the rich have the largest portion of their wealth in stocks, while the middle class have the largest share of their wealth in residential real estate and property.
Property tends to earn lower returns than stocks. Why?
- Worthwile stocks (shares) represent a part ownership of a real business.
- Businesses worth investing in generate cash by meeting market demand for desired goods and services.
- These worthwile businesses take some of their profits and “continue to find more productive ways to use resources”.
- In other words, they use technology to become more productive resulting in more cash generation.
- This increased cash can be invested to promote business growth.
- Improved financial performance and increased earnings and cash generation causes share prices to rise.
- Portions of this increased cash generated can be paid to investors in the form of dividends.
A well selected portfolio of leading companies can provide long term income generation through dividend payments in addition to capital gain. In essence, investing in stocks is a bet that humans will continue to advance technologically and more efficiently meet the needs of the planets population for profit. History shows that is a bet worth taking.
At AXIAM, we consider the ability of the companies we invest in to use human ingenuity and technology to consistently increase cash flows. We buy shares in companies, irrespective of their geography, that have great brands that are known, loved and used around the world daily and we keep them for a long time. Sign up to our newsletter or follow us on Twitter to learn more about investment in the best global brands or contact our fund management team to invest.