> The stock market is one of the worst places to put your money unless you keep it there for decades.
> Lousy isn’t even the right word. Dangerous is a better word for it.
> No investor in history has ever lost money when they buy an S&P 500 index fund and sit on it for 20 years. That’s not hyperbole; it’s a fact.
The S&P 500 had had negative returns in 31% of years from 1872 to 2019. Nearly one in three years, the stock market provides negative returns. But that should only scare toddler investors.
Zoom out, and everything comes into focus.
Grown-up investors who hold the S&P 500 for 20 years and reinvest the dividends have never lost money between 1872 and 2019—And yes, that includes inflation.
This came up on a panel I was on yesterday, that people are always looking for the secrets to how rich people get richer. But the truth is, it's nothing fancy. Just investing in low-cost funds, holding them for a long time, and enjoying the power of compound interest!
Great, Ben. I am posting this piece on my classroom discussion board for my life-cycle economics class. I encourage you to dive into the academic research on advisors (not) beating the market, explained with your well crafted written words. I spend more time on addressing common personal finance questions than on investments, and am increasingly seeing how Making of a Millionaire will be helpful to my subscribers.
As a finance person myself whose main strategy is exactly as the above... I can never convince anyone beyond my business school peers to adopt this approach.
Everyone's response is always, "you don't lose money yes, but you'll never get a chance to double your investments in a year!"
Ben, I absolutely loved your analogy between toddler investors and mature, long-term thinkers in the stock market! It's a brilliant way to highlight the importance of patience and strategic foresight in investing. The comparison not only adds a touch of humor but also makes the concept relatable and understandable for everyone, regardless of their investing experience. Your personal touch, mentioning how you handle investments for your son's education, really brings home the point that investing is not just about immediate gains but securing a future.
Your focus on the historical performance of the S&P 500 and the emphasis on the 20-year rule offers a fresh perspective, especially in a time when quick gains seem to be everyone's focus. Highlighting the fact that no investor has lost money over a 20-year span with the S&P 500 index fund is both encouraging and grounding. It serves as a reminder that in the world of investing, patience isn't just a virtue; it's a strategy. The Warren Buffett quotes were the cherry on top, reinforcing the message that successful investing is about playing the long game. Thanks for sharing such insightful thoughts, Ben!
To be good investors, we should read psychology books, not finance books.
I love these bits!
Such important data!
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> The stock market is one of the worst places to put your money unless you keep it there for decades.
> Lousy isn’t even the right word. Dangerous is a better word for it.
> No investor in history has ever lost money when they buy an S&P 500 index fund and sit on it for 20 years. That’s not hyperbole; it’s a fact.
The S&P 500 had had negative returns in 31% of years from 1872 to 2019. Nearly one in three years, the stock market provides negative returns. But that should only scare toddler investors.
Zoom out, and everything comes into focus.
Grown-up investors who hold the S&P 500 for 20 years and reinvest the dividends have never lost money between 1872 and 2019—And yes, that includes inflation.
This came up on a panel I was on yesterday, that people are always looking for the secrets to how rich people get richer. But the truth is, it's nothing fancy. Just investing in low-cost funds, holding them for a long time, and enjoying the power of compound interest!
Great, Ben. I am posting this piece on my classroom discussion board for my life-cycle economics class. I encourage you to dive into the academic research on advisors (not) beating the market, explained with your well crafted written words. I spend more time on addressing common personal finance questions than on investments, and am increasingly seeing how Making of a Millionaire will be helpful to my subscribers.
I think to convince people you need to include a mathematical use case.
As a finance person myself whose main strategy is exactly as the above... I can never convince anyone beyond my business school peers to adopt this approach.
Everyone's response is always, "you don't lose money yes, but you'll never get a chance to double your investments in a year!"
Thanks for explaining this so clearly. I'm getting ready to dip my toes in the investing paddling pool, but have been a little nervous to get started!
Ben, I absolutely loved your analogy between toddler investors and mature, long-term thinkers in the stock market! It's a brilliant way to highlight the importance of patience and strategic foresight in investing. The comparison not only adds a touch of humor but also makes the concept relatable and understandable for everyone, regardless of their investing experience. Your personal touch, mentioning how you handle investments for your son's education, really brings home the point that investing is not just about immediate gains but securing a future.
Your focus on the historical performance of the S&P 500 and the emphasis on the 20-year rule offers a fresh perspective, especially in a time when quick gains seem to be everyone's focus. Highlighting the fact that no investor has lost money over a 20-year span with the S&P 500 index fund is both encouraging and grounding. It serves as a reminder that in the world of investing, patience isn't just a virtue; it's a strategy. The Warren Buffett quotes were the cherry on top, reinforcing the message that successful investing is about playing the long game. Thanks for sharing such insightful thoughts, Ben!
Ben, wonderful analogy and building for the next generation is always a great idea.👏👏👏