As discussed in the basics of investment, the nature of assets, there are three main asset classes; cash, fixed interest and equities (often referred to as stocks or shares). Key Point All return, whether it be your earnings, the interest you get from your cash, fixed interest investments, government sponsored investments, stock market dividends, all come from the return on the production of goods and services. An investor places cash in a bank. Cash deposits are paid a rate of interest for what is really a short term loan to a financial institution. The financial institution lends this money to producers of goods and services at a higher rate of interest. What this institution earns for taking the risk of lending the money is the second component of return. You the cash investor do not get this money because you are not taking this risk. If you were to buy a fixed interest investment, from either the government or a company, you would get this component of return, because you would be risking this capital for the higher return.
Producers of goods and services need to earn a return over and above the cost of capital, sufficient to justify the risk of the investment. Investors who want to earn all three components of return, would need to buy stock market investments, or set up their own businesses.
Your decision The decision, you the investor need to make, is this. Do you want one component of the return (say the cash return), or do you want to earn all three components of return? When buying stock market investments you are buying a capital investment in a company. This capital investment gives you ownership of the earnings of the company. Earnings Earnings are a company's profit after it has paid all tax, all wages, and production costs etc. The earnings of a company can be considered very similar to the interest you receive on your cash account, because the interest on cash is the earnings you have received for lending the money to the bank. The only difference between the earnings you receive from the bank and those from the company is that not all a company's earnings are paid to you. Only a portion are paid and you receive these as dividends. The money a company retains is used to invest in the company to further growth of earnings. When comparing the return on cash and the return on equities you should not compare the dividend yield versus the cash yield. When comparing the return on cash to the return on equities, never compare the return on cash and the return that has happened on the stock market.
A company's earnings provide you with the opportunity for additional return over and above the return you would have got on your cash investment. But, it is not today's earnings that will provide you with the additional return, but future earnings. While a share is priced in dollars, cents, pounds, pence, yen or whatever the currency of the country it is bought, the actual value of the company is often shown as a multiple of the share price divided by the earnings of the company (P/E ratio). For example if the price of a company's share was worth 20 times the earnings of company, this means for every 100 dollars/pounds/Euros you spend you would receive 5 dollars/pounds/euros of earnings.
The objective of investment is therefore to buy future earnings at the cheapest possible price. The role of investment discipline is to ensure that the money you are paying is worth the earnings you will receive.
The following chart shows the earnings on the S&P 500 in April 2000 versus the earnings on the US 10 year bond yield. At that time US markets were highly valued and the actual earnings produced by US companies were only 2.4% of the value of the market. Compare this to the bond which yielded 6.6% at the time. If US corporate earnings were to grow at an average 8% a year it would have taken some 21 years for the earnings on the market to equal the total earnings on the bond. It would have taken some 14 years just for earnings to get to that provided by the bond. This was clearly not a good buying opportunity. This is also why you need a professional with the investment discipline and investment expertise needed to manage your money properly. | 
