It doesn't matter what time of the year it is, whether the market is going up or going down, long-term investors have an edge. An edge that is so incredibly obvious, an edge that is so simple that it is so hard. Thanks to Bespoke, here are 10 simple charts on the benefits of long-term investing.
Light at the end of the tunnel
Through wars, assassinations, bankruptcies, and crashes, the US stock market has always gone on to make new highs. A wise investor once said: “Never bet on the end of the world, because it only happens once.”
Odd that beat The House
Casinos make money by making sure bettors eventually lose more often than they win. The stock market is the opposite. The longer you play, the better your odds. Historically, the odds of the S&P 500 being up over any one-month time frame has been 63%. Over a year, the odds of a gain jump to 75%, and over eight years, they surge to 97%. Since 1928, all 16+ year time frames have seen positive returns.
Stocks trump them all
While there are benefits (and risks) to owning different asset classes as part of a diversified portfolio, stocks have historically been the top performer. $100 invested in US stocks thirty years ago would be worth $1,850 today. No other asset class comes close over the same time frame.
Stocks: Inflation's kryptonite
Inflation is a wealth killer, but the stock market is inflation’s kryptonite. $1,000 in cash put under the mattress in 1945 would leave you with $1,000 today and a 90%+ drop in buying power. $1,000 invested in the US stock market in 1945 with dividends re-invested would be worth about $3.5 million today, which is a number that has beaten inflation as measured by CPI by roughly 20,000%.
The sooner, the better
The younger you can start investing in the stock market, the better. Based on its annualized total return of 9.55% since 1928, a single $10,000 investment in the S&P 500 at age 20 would leave you with over $600,000 at age 65. If you don’t start until you turn 40, at 65, you’d have just $97,840.
Embrace the market declines
Emotions and investing don’t mix. Emotional investors tend to sell when the market is going down and buy when the market is going up. They should be doing the opposite. As shown below, if you only owned the US stock market on the day after up days since SPY began trading in 1993, your cumulative gain would be just 14.6%. If you only owned the market on the day after down days, you’d be up 764%!
Time heals
The stock market can be very forgiving if you give it time. The four worst times to buy equities over the last forty years were in September 1987 (before the 1987 crash), March 2000 (before the dot-com peak), October 2007 (before the Financial Crisis peak), and February 2020 (before the COVID crash). Since each of those four ill-fated buy points, stocks have still returned at least 6.6% on an annualized basis and have outperformed bonds over all four spans.
Bull markets > bear markets
Since 1928, the S&P 500 has been in a bull market on 78% of all days. Historically, the average bull market for US stocks has lasted nearly 4x as long as the average bear market. If you’re planning to stay invested for longer than a year, bear markets should not scare you.
Don't sleep on dividends
Owning the “market” through a “buy and hold” strategy of an ETF like SPY (that tracks the S&P 500) means you’ll capture the dividend yield of the market as well. Over time, those dividends really add up. Since 1993 when the first S&P 500 ETF (SPY) began trading, nearly half of the index’s 1,653% total return has come from capturing and reinvesting quarterly dividend payouts.
Don't get political
Letting political beliefs get in the way of “Buy and Hold” has been extremely costly to investors. Going back 70 years, $1,000 invested in the US stock market only when a Republican is President would be worth $27,400 today. $1,000 invested only when a Democrat is President would be worth double that at $52,100. But that $1,000 would be worth $1.43 million today for those who put politics aside and stayed invested regardless of who’s in charge in Washington DC.
As the year draws to a close, I encourage you to think about your money goals for 2024. Through the lens of a long-term investor, there is so much potential. How do you plan on making the most of your money?