It’s time to get back to the basics. It surprises me that people invest in the stock market with no real concept of how it has performed in the past. If you are relying on these financial vehicles to fund your retirement you need to understand the data. Otherwise it is very easy to get derailed by fear.
Of course, past performance doesn’t guarantee future success. But when something has had the same returns for 200 years, you need to pay attention.
Note: Whenever I refer to the "stock market" I am referring to the S&P 500 which represents the 500 largest companies in the U.S.
Let’s look at what the stock market has done in each of the past ten years.
2012 +15.89%
2013 +32.15%
2014 +13.52%
2015 +1.38%
2016 +11.77%
2017 +21.61%
2018 -4.23%
2019 +31.21%
2020 +18.02%
2021 +28.47%
2022 -18.01%
Takeaways:
You would have made a fortune investing in stocks over the past decade. The money would have tripled. The "down" years are really put into perspective when you see the returns before and after. Markets are remarkably resilient no matter what else is going on in the world.
Let’s look at longer time periods.
In the past ten years, the market has returned an average of 12.51%.
Over the past twenty years, the market has returned an average of 9.77%.
The past thirty: 9.63%
The past fifty: 10.31%
The past seventy: 10.70%
I’m noticing a pattern here. How is it that, over any meaningful time period, the markets have returned 10%? I mean, seriously, what could be more consistent and predictable?
I often get pushback to these ideas. I hear, "Dave, I am older now, and I don’t have time to make the money back."
First of all, you are going to live longer than you think. If you are a healthy 65-year-old your life expectancy is ninety.
Secondly, if you play it safe in order to not lose money, I have bad news.
Let’s look at someone who invested over the past ten years, versus someone who put their money in bank CDs.
Original Investment: $10,000
Invested in stocks from 2012-2022
Final Value: $32,490
Original Investment: $10,000
Utilized bank CDs from 2012-2022
Final Value: $11,422
Everyone who tried to be safe and "not lose money" lost ALOT of money. I can’t drive this home enough. Many times, by trying to protect their savings, people like you lose vast sums of money without realizing it.
In this scenario do you ever hear someone say, "I invested my money in CDs for the last ten years and I lost $20,000"? Of course not. Nobody thinks that way, but you simply cannot build real, sustainable wealth by sticking to guaranteed investments.
The media has you completely fooled. This is yet another variable that can push you into making bad decisions. In order for you to pay attention to the media every day, they have to make it appear you need to pay attention to the markets every day.
Imagine if they told the truth: "Today the markets may go up or may go down. It really doesn’t matter. What’s important is that over the medium to long term stocks will do well. There is no need for you to even know what the markets are doing. It doesn’t matter. You’ll be better off if you don’t pay attention. And now a message from our sponsor….."
I’m pretty sure you would change the channel.
Be Blessed,
Dave
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