Stocks That Are Better Than Gold

Well, that's just wrong. You might think of gold as safe-ish because
it's a tangible item that exists in limited quantities, and because
piles of gold bars in a vault somewhere won't be worth nothing anytime
soon. Think again. 

Stocks are tied to tangible things, too: actual bricks-and-mortar companies. Merck (NYSE: MRK) stock is tied to Merck buildings and Merck employees and lots of research and formulations of medications and patents.

Chevron (NYSE: CVX)
stock is tied to oil-related equipment and data, to oil fields, pumps,
and refineries, and to more buildings and employees, among other
things. It's not likely that those kinds of assets will suddenly become
worthless, or that the demand for energy and medications will shrivel
up. Great companies tend to hold their value.

Gold's mixed results

Those who think gold is a great investment need to think again, too. Sure, it can be one. And it has
been one -- now and then. But over long periods, it doesn't have the
best track record. Check out what $1 invested in various things between
1802 and 2006 would have grown to:

Data: Jeremy Siegel, Stocks for the Long Run.

As you can tell from the dollar's return, those numbers are
inflation-adjusted. A mere $100 investment would have netted you more
than $75 million in stocks, while your money wouldn't even have doubled
in value if you owned gold.

I know, none of us will be investing for 204 years. And gold has
done well lately; it recently topped $1,000 per ounce. That's more than
twice where it was five years ago. But check out these returns:

Data: National Mining Association.

Clearly, you can do rather poorly with gold over various long
periods. The 1970-to-1980 period is legitimately exciting, with an
annualized 33% gain. But even the overall 1,372% gain isn't so hot,
since it's over 100 years. Annualized, that comes out to just 2.7%.

You can do better

So go ahead and invest
some of your money in gold if you really believe in it. Just know that
with prices near all-time highs, it might be more likely to fall in
value than to keep rising -- which is why it's good to seek out investments that seem cheap. But consider parking much of your money in places where it's most likely to grow well for you, such as stocks.

You could follow the advice of Warren Buffett and us at The Motley
Fool and just opt for one or more simple index funds, which will track
the overall stock markets for you. The Vanguard S&P 500 (VFINX) fund, for example, tracks 500 of America's biggest companies, including Hewlett-Packard (NYSE: HPQ), Disney (NYSE: DIS), and DuPont (NYSE: DD).

If you want to aim even higher than that, you might add a handful of
carefully selected stocks to your mix. One way to find some is to
screen for them. Here, for example, are some potentially undervalued
companies I found when I screened for market caps of $2 billion or
more, price-to-earnings (P/E) ratios of 20 or less, three-year revenue
growth rates of 10% or more, and four or five stars (out of five) in
our CAPS community of investors:

Data: Motley Fool CAPS.

Of course, you'll still need to research any such candidates further.

© 2009 UCLICK, L.L.C.