The stock market often gets a bum rap. Sure, it can plunge from time to time, as we've been reminded several times in recent years. But overall, it still beats most alternative investments.

Let's take a look at some arguments against it, shall we? For starters, there's the famous "lost decade." It's a bit of an exaggeration. Yes, those who plunked lots of money in the S&P 500 from 2000 through 2009 experienced a loss. But that's not how most of us did -- or should-- invest. Most investors appreciate the value of diversification. If you had big chunks of your assets not only in large American stocks but also in small ones and in emerging markets, REITS, and bonds, well, you'd have fared much better.

Also, few of us just invest a big chunk of money at one time and call it a day. More typically, we add money to the market over time, as we accumulate it. Thus, many people added money to the market at all points during the lost decade, not just in January 2000.

Banks and bonds ... pshaw!
Those who insist that the stock market is too scary and ineffective for them need to think again. And begin by thinking about inflation. Because if your investments are not averaging at least a 3% annual return, you're probably going to be losing purchasing power over time instead of increasing it. The long-term average annual rate of inflation is around 3%.

Want to just "safely" stash your money at your bank? You'll be lucky to get even a 1% interest rate on a savings account. Two- and three-year CDs are paying considerably less than 2%, and even five-year ones are barely above 2%.

Bonds can be great, and they make sense for a growing portion of your assets as you near and live in retirement. But don't expect them to make you rich, or to even beat stocks over the long haul. Check out these statistics from Wharton Business School professor Jeremy Siegel, reflecting how often stocks outperformed bonds over various rolling periods between 1871 and 2006.

Holding Period

Stocks Beat Bonds This Percentage of the Time

1 year 60.3%
5 years 71.3%
10 years 82.4%
20 years 95.6%
30 years 100.0%

Data: Jeremy Siegel, Stocks for the Long Run.

You would do better simply investing in bank stocks rather than hoping to grow wealth in any bank account. Perhaps look at Spain's Banco Santander (NYS: STD) , as it's growing aggressively and planning to expand into China. Another worth watching is Hudson City Bancorp (NAS: HCBK) , which, despite a drop in revenue recently, has been improving its credit quality considerably.

All that glitters
OK, then, you say. How about gold? Well, yes -- it's clearly been on a tear recently. But many bubbles do burst. Check out how gold fared in the following time periods.

Between

Total Gain or Loss

1900 and 2000 1,372%
1900 and 1950 83%
1970 and 1980 1,607%
1980 and 1990 (38%)
1990 and 2000 (27%)
2000 and 2010 291%

Data: National Mining Association.

Note that the 83% gain is over 50 years -- ones in which you wouldn't have even doubled your money.

Again, if you're set on investing in gold, consider opting for gold companies instead, through their stock. Many have high hopes for Northgate Minerals (ASE: NXG) , which my colleague Christopher Barker has called "the greatest gold stock in the world." But alas -- it's being snapped up by AuRico Gold (NYS: AUQ) . So consider AuRico instead, as it's been firing on all cylinders lately, making major acquisitions and beefing up its production. Another possibility, if you're open to other precious metals as well as gold, is Silver Wheaton (NYS: SLW) , with its massive profit margins and potential for serious dividend growth.

Location, location, location
Location might be important when considering which home to buy to live in, but think twice before buying real estate as an investment. Over many decades, home values have grown by between 5% and 6% per year, according to the National Association of Realtors, although obviously there have been long lagging periods in many spots.

Real-estate stocks, again, could serve you better than actual real estate. Learn more about real estate investment trusts (REITs), and then perhaps look into the Vanguard REIT Index ETF (NYS: VNQ) , which will instantly have you diversified across more than 100 REITs. Another possibility is Annaly Capital (NYS: NLY) , which has been doing well investing in mortgage-backed securities as it takes advantage of low interest rates. Its dividend yield of close to 15% (you read that right) is also rather appealing, no?

Powerful long-term growers
It's hard to find investments that top stocks over the long haul. Check out what just $1 invested in various things between 1802 and 2006 would have grown to, per Professor Siegel:

Investment

Real Return, Over 204 Years

Dollar $0.06
Gold $1.95
T-bills $301
Bonds $1,083
Stocks $755,163

Data: Jeremy Siegel, Stocks for the Long Run.

If you really need to grow your nest egg for your retirement, don't put your golden years at risk by not taking on enough risk.

Want some great stock ideas? Help yourself to a copy of this free report: "5 Stocks The Motley Fool Owns -- and You Should Too."

At the time this article was published Longtime Fool contributor Selena Maranjian owns shares of Annaly Capital Management, but she holds no other position in any company mentioned. Check out her holdings and a short bio. The Motley Fool owns shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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