Figures lie and liars figure.  That is an old saying and like most old sayings, they become old because they are true!  People selling you this or that often use facts and figures to persuade and nowhere is that more evident than when it comes to investing your hard-earned money.  Today, stock brokers and financial planners are trying to convince the average person that now is a great time to buy stocks.  They say that prices are cheap based upon something called the ‘price earnings ratio' - plus they say that over the long term stocks average around 12% per year and nothing beats that.  Greed being a powerful motivator, it is tempting to  put your hard earned and saved cash into stocks or mutual funds to "buy low and sell high".

Well, I am here to tell you that stocks are not cheap, they don't average 12% over the long  haul, and when you compare risk to reward, you would be nuts to own either stocks or mutual funds that own them right now.  First of all, the price earnings ratio is a number that reflects the current price of a stock versus its profits (earnings) per share (profits/number of shares outstanding = price/earnings ratio).  At around 13 this looks fairly cheap historically speaking, but remember those profits are very suspect.  Things look dark ahead and if the projected profits don't materialize, the stock prices will fall.  Ask the Japanese if you can have a growing economy with falling stock prices.  30 years ago their stock market was 2/3 higher than it is today in spite of their economy being 25% larger now.  Profits have stunk and that is reflected in prices of stocks, not economic growth.  In spite of what a broker or planner might tell you, the stock market neither reflects nor predicts future growth.  That is just a myth.  So even if the president is right and we are in recovery, it is at the very least a weak one and so stock prices are high, not low.

As for that 12% per year average they like to throw around, that includes numbers back to the 1890s which are also highly suspect.  Plus, unless your timeline is 120 years, that average is largely irrelevant.  The actual number, adjusted for inflation, is likely 5% per year in reality, and that means there is no rush to jump on the bandwagon.  Stay calm, don't look for the quick hit, use Treasury Inflation Protected Securities (TIPS) to protect your cash, buy gold and silver, and wait.  It's like the fable of the tortoise and the hare.  Right now is the time to be a tortoise.  Relax.