The US Stock market has been the greatest wealth-generation machine of all time, turning an initial investment of $10,000 into $2,673,000 over the last 72 years (1950 to February 1, 2022).
That may be an impractical time frame for some, but let us show you some context on why it matters. Note, the grey colored columns on both charts signify an economic recession. Here is what actually happened during those 72 years of amazing returns:
This is very important. During a period when stock market returns were extraordinary, you see that is is very common and normal for stocks to sell down below (and sometimes significantly below) their previous all-time high.
Big returns amid volatility, negative media headlines and constant chaos is the entire history of the stock market. That's why it's called "climbing the wall of worry."
But still... these declines hurt and they're not fun.
An excerpt taking from an interview* with Morgan Housel, a former columnist at The Motley Fool and The Wall Street Journal. Author of the book The Psychology of Money (which is a great book and I would highly recommend).
Two things to keep in mind:
- Nothing is free: There's a cost of admission that must be paid to do well over time. The world is not so kind that it'll deliver big returns to people who sacrifice nothing. All durable long-term investing returns have to be earned, deserved.
- The highest cost investors pay is enduring volatility and uncertainty. A big decline doesn't necessarily mean you did something wrong; most likely you're just paying the cost of admission to earning good returns over a long period of time.
Your lifetime investing returns are overwhelmingly determined by how you behave when the market gets wild, like it is now. If you can remain calm and not dump everything in a panic when the market plunges, you don't need to make many smart decisions to do well at investing over time.
And remember the ultimate market irony...
All past market declines look like opportunities, all future market declines look like risks.
*Source: The Hustle Newsletter on January 26, 2022