Most investors know that S&P 500 stocks are tops when it comes to long-term investments. But shockingly more people now think a savings account is their best bet. The trouble is — they're wrong.
Hammered by months of a rough market, only 19% of people think that stocks will be the best long-term investment, based on a new IBD/TIPP poll conducted this month. That's shocking as it means more people think real estate (26%) and even savings accounts (25%) are a better place to put money long term.
The trouble is they're wrong. There's little chance — if any — that a savings account will return anywhere near that of stocks and the S&P 500. History shows the true story.
Investors Are Souring On Stocks, S&P 500
Savings accounts better than stocks? Seeing so many people think that's true indicates just how much pain this S&P 500 sell-off is inflicting.
And it's not just sudden disgust. August was the third month in a row where people said they think a savings account is a better place to put money long term than the market, says the TIPP/IBD poll. In July, 27% of people said the savings account is the best long-term investment. That was more than any other asset type, including stocks (17%).
The savings account was also people's No. 1 choice for long term investment in June, picked by 24% of those asked. Again, the lowly savings account ranked No. 1 among all asset types including stocks (21%), real estate (23%) and gold/silver (17%).
It's true that interest rates on savings accounts are rising. But it's still a pretty poor place to put long-term money. How poor? The average national rate on U.S. savings accounts is just 0.13%, says Greg McBride, chief financial analyst at Bankrate.com. And that's double the 0.06% savings accounts paid on average back in April.
But if you think a savings account is a better bet than the S&P 500, there's really no historical precedent for that.
Comparing Savings Accounts To Stocks
If you're looking to see why savings accounts don't even remotely compete with stocks long term, the past 20 years show a perfect story. You'd be much better off having put your long-term money in stocks vs. a savings account.
How much better off?
Had you put $100,000 into the S&P 500 in 2000, you'd have $494,048 now. That's a remarkable nearly 400% gain, putting an extra $394,000 into your pocket, based on annual returns data from S&P Dow Jones Indices. What about a savings account? You'd have just $108,056 at the end of 20 years, says data from Bankrate.com. The savings account rose just 8.1%, or $8,056 during the period.
In other words, had you put your money in a savings account instead of the S&P 500, you would be more than $386,000 poorer.
You might think it's just a lucky run for the S&P 500. But in reality, in many ways, the past two decades were far from ideal for stock investors. The S&P 500 dropped in all three of the first years of period from 2000. And not by a little. The S&P 500's losses in 2000, 2001 and 2002, even including dividends, were 9.1%, 11.9% and 22.1%, respectively.
Overcoming a big drop in the start of a period is much harder, due to the mathematical force of sequence of returns. The fact is, savings accounts are terrible long-term places to put your money.
Sure beats a savings account.
Stocks Blow Away Savings Accounts As Investments
You'd have nearly $400,000 less if you put your $100,000 in a savings account 20 years ago rather than stocks
| Year | Savings
interest rate % |
S&P 500
total return |
Savings account balance | S&P 500 account balance |
|---|---|---|---|---|
| 2000 | 1.72% | -9.10% | $101,720 | $90,896 |
| 2001 | 1.14% | -11.89% | 102,880 | 80,092 |
| 2002 | 0.82% | -22.10% | 103,723 | 62,391 |
| 2003 | 0.46% | 28.68% | 104,200 | 80,288 |
| 2004 | 0.41% | 10.88% | 104,628 | 89,025 |
| 2005 | 0.53% | 4.91% | 105,182 | 93,398 |
| 2006 | 0.54% | 15.79% | 105,750 | 108,149 |
| 2007 | 0.46% | 5.49% | 106,237 | 114,091 |
| 2008 | 0.37% | -37.00% | 106,630 | 71,880 |
| 2009 | 0.23% | 26.46% | 106,875 | 90,902 |
| 2010 | 0.17% | 15.06% | 107,057 | 104,595 |
| 2011 | 0.10% | 2.11% | 107,164 | 106,804 |
| 2012 | 0.08% | 16.00% | 107,249 | 123,896 |
| 2013 | 0.08% | 32.39% | 107,335 | 164,024 |
| 2014 | 0.09% | 13.69% | 107,432 | 186,477 |
| 2015 | 0.08% | 1.38% | 107,518 | 189,057 |
| 2016 | 0.08% | 11.96% | 107,604 | 211,668 |
| 2017 | 0.09% | 21.83% | 107,701 | 257,879 |
| 2018 | 0.09% | -4.38% | 107,797 | 246,572 |
| 2019 | 0.10% | 31.49% | 107,905 | 324,209 |
| 2020 | 0.08% | 18.40% | 107,992 | 383,860 |
| 2021 | 0.06% | 28.71% | 108,056 | 494,048 |
Sources: IBD, S&P Global Market Intelligence, Bankrate.com, S&P Dow Jones Indices
Follow Matt Krantz on Twitter @mattkrantz
