Reckless, I Guess
One of my friends recently blasted me in a one-on-one conversation. Well, not me, specifically, but some of my content. He said that I "teach reckless principles" when it comes to investing. To summarize, I regularly talk about the simplicity, power, and effectiveness of investing in broad U.S. stock market index funds (such as VTI, VTSAX, FSKAX, VOO, or SPY).
My friend believes this advice is beyond risky. In his words, I'm "gambling" my life savings away.....and telling others to gamble, too. He's not alone in this sentiment, which is why I spend a large chunk of my professional and teaching life educating people about the truths of investing.
Did you know people owned stocks while they were still riding around on horses? Yeah, the U.S. stock market has been around since before the automobile was invented. We're talking Abraham Lincoln and the Civil War. That's what kind of track record we're talking about here.
During that nearly 160-year stretch, from the late 1800s until today, the U.S. stock market has NEVER lost money over a 15-year period of time. Ever. Sure, history tells us that we could lose half of our life savings (on paper) over a five-year window. That's happened in the past (1928-1932)... so there is precedent. But never in nearly 160 years has the market lost money over a 15-year period of time. The worst 15 years of all time were from 1929-1943, when the market delivered a total 19% gain over that stretch of time (1.15% per year). Considering what was happening in the world during that stretch (two World Wars!!!!), that's a pretty remarkable outcome!
One last number. The WORST 25-year period since the late 1800s saw the stock market increase by 3.3x (4.92% per year). Think about that. The WORST 25 years ever resulted in your investments more than tripling. Most people reading this article will be alive in 25 years. Historically speaking, your WORST outcome over that stretch will be tripling whatever you have today if you simply invest in a broad, cheap U.S. stock market index. It boggles the mind to even think about, and I don't think "reckless" feels like the right word to describe it.
This post isn't investment advice, but I did want to address this topic head-on while there's so much crazy noise spouting off all around us. We don't have to be scared. We don't have to play games with our investments. We don't have to take hot stock tips from Uncle Chuck at Thanksgiving or crazy Billy at work. Chances are, they will both be broke in due time. Instead, trust history, be patient, and don't lose sleep at night. It's always been a roller coaster and always will be a roller coaster, but if history tells us one thing, the roller coaster somehow finds its way uphill in the long run.
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