“Good things come to those who wait.”
If you read the Wall Street Journal or other financial press, or listen to any of the business cable channels, the “bad” news is enough to give you chronic indigestion if you are invested in the stock market. Given the recent topics covered in this piece, this writer is guilty of some Chicken Little talk as well. Near-record high stock valuations, bubbles, inflation, budget deficits, COVID, cyber attacks, historically low bond yields … the list goes on and on. Well, change the business channel to Animal Planet and put the WSJ in the bird cage, things are not so bad!
Usually, as one looks further out in time, the more uncertain things get. I’m pretty sure what the weather will be like in an hour, and even the forecast for the next few days is pretty reliable, but what it will be like a month from now, not so much. However, the stock market works like a crystal ball in reverse. I have no idea if the market will be up or down in the next hour, or day, or week, or in one or two months. But, I know which way it will be in 20 years -- and the answer is up!
If you look at the 42 20-year rolling returns to the S&P 500 starting in 1960, the average total return is 371%. Not one of those 20-year periods had a negative return, the minimum being 71% from 1961-1981. The highest return was 1261% from 1979 to 1999. These numbers are despite the fact that there were 11 bear markets (S&P 500 down at least 20%) during this period, including three “super-bear” markets that took the average down more than 50% (1973-74, 2000-01, and 2008-09). If you shorten the horizon to 10 years, the average total return is 111%. Of the 52 periods in this range only 7 were negative, the worst being a -27% return for the decade ending in 2008, a period encompassing two of the super-bear markets. Over the entire period (1960-present), the S&P 500 is up 6958%. Since 1975, the S&P is up 6026%. By comparison, gold is up 1048% since that time (which is when gold started trading fairly freely after U.S. restrictions n its ownership were lifted).
The lessons are clear. Over time, stocks always go up. They are the best way to participate in increasing productivity and economic growth. Keep what you need in the short run in liquid investments, but for anything longer than a decade keep fully invested in a well-diversified portfolio. Don’t try to “time” the market; dollar-cost average (buy at regular intervals regardless of price), don’t fret over downturns, and wait – good things will come (and you’ll save a lot on the Tums!).
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