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Comparing the returns on other investments

Also shown in Figure 1.7 are the returns on bonds issued by these governments as they borrow from investors to make up for shortfalls in tax revenues. A bond is a simple way for an organisation to borrow money. Thus a government or company could sell a piece of paper which promises the owner a payment at the end of, say, 10 years as well as a series of interest payments at annual or six- month intervals.

Notice that in all the cases shown in Figure 1.7 you would have been better off invested in shares over the long run. The extra return on shares above government bonds is generally between 3% and 6% per year (over a century or so).

Another alternative investment is to place money in building society ...