money, according to financial advisor Ms Carolyn Hall.

Compared with other forms of investment, it was difficult to beat stock yields for making your savings grow, she told a meeting of Hamilton Lions.

One hundred dollars invested in the US stock market in 1925 would have been worth $67,559 at the end of 1991, an annual return of 10.38 percent, according to statistics compiled by an independent rating service, she said.

That same $100 invested in US Treasury Bills or US Government secured Treasury Bonds would have been worth $1,101 and $2,194 respectively at the end of the same period.

US stocks even outperformed the Bermudian real estate market, in which locals have traditionally invested much of their money in the past.

"The most typical house in Bermuda is the low-end executive house, which has three bedrooms, two bathrooms and one-and-a-half acres,'' said Ms Hall, who is a financial advisor with investment firm First Bermuda Securities.

"When this type of house first began to appear in 1965 it cost the equivalent of about $60,000. In 1989, this same house cost $500,000, which represents an annualised return of 8.5 percent.'' Bermuda's housing market did, however, out pace the US stock market between 1975 and 1985, when this house went from $100,000 to $400,000, an annualised growth of 12.7 percent.

Bermuda's local stock market had offered similar returns to its real estate market, but less than the US stock market, said Ms Hall.

"The Bermuda Exchange has doubled since 1983 when it measured approximately 350 points to its current level of about 700 points, which was an average annual return of 8.22 percent,'' she added.

Ms Hall said that inexperienced local investors who were deterred from investing overseas by exchange control restrictions often found the local stock market too bewildering.

"More sophisticated local investors see that the local stocks are not widely held,'' she said. "Consequently there is a liquidity problem. That is, when you wait until Tuesday to buy or sell a stock you may or may not get a `fill'.

"This is a frustrating process at the very least and a costly, stressful ordeal in the event of a financial emergency.'' Local investors often assessed stocks based on dividend yields alone, which was wrong, said Ms Hall.

She added: "When timing the purchase or sale of a fundamentally sound overseas stock, portfolio managers often look at the price/earnings multiple.

"If the p/e multiple is high, say current market price is 20 or 25 times current earnings, the portfolio manager will either sell the stock or employ a hedging strategy to protect the unrealised gain.

"Locally, investors seem to prefer stocks with dividend yields of five to ten percent and ignore p/e multiples, which locally are all under 10. I'm not sure, but I sense that local investors are looking only at dividends as a return on investments and are ignoring the growth potential of common stocks.'' Ms Hall said Bermudian investors could enjoy the higher returns of their US counterparts if Bermuda abolished or reduced foreign investment tax.

"This would encourage the smaller investors to invest for their futures rather than spend $3,000 overseas on consumables each time they make a trip,'' she added.

"Also, local stock exchange rules should be liberalised. This would encourage more sophisticated investors to participate in the local exchange.

"If this happened, it could be argued that local stocks will be assessed on price/earnings multiples and will appreciate significant gains in value, assuming, of course, the company is a fundamentally sound investment.

"This will, in time, cause increased trading volumes and liquidity will be introduced, encouraging even more investors.'' Ms. Carolyn Hall.