Three Reasons To Be Optimistic About the Stock Market
Think back to late 2020. A number of us were kicking ourselves saying, “why didn’t I just buy X stock, I could have doubled my money!”
Well, as Morgan Housel puts it, “Every past decline looks like an opportunity and every future decline looks like a risk.”
When you are going through a time like this, it’s so hard to stay optimistic.
I don’t need to remind you that we are experiencing one of the worst years on record for the stock market.
The headlines and articles we read each day do nothing but provide more angst and anxiety:
“The worst is yet to come” - International Monetary Fund
“The markets could easily fall another 20%” - JP Morgan CEO Jamie Dimon
“The world is ending” - my 55 year old pessimistic neighbor
Volatility is expected when you are investing in the stock market. We have to put up with all of these intra-year drawdowns to get the permanent ups.
But here are three reasons to stay optimistic about the stock market:
“This has never happened before!”
This is something we hear a lot. But things that have never happened before happen all the time.
The chart below summarizes the yearly returns (dark gray bars) for the S&P 500 going back to 1980 and the declines we experience during each year (the little red dots)
Despite all of these drawdowns that we see, the annual returns for the S&P 500 index from 1980 - 2021 is positive 76% of the time!
It has been awhile since we have endured this much pain for so long. But I still like the odds of over the long-run. Be in it to win it.
It’s rare to finish the year down 20+%, but the future returns look promising:
It was 1974 that finished down 20+%, not 1972.
Is it fun seeing your portfolio finish a year down substantially? Of course not.
But look at the yearly returns following these terrible years:
1975 - S&P 500 gained 31.5%
2003 - S&P 500 gained 26.4%
2009 - S&P 500 gained 23.5%
The takeaway? Just because you endured a tough year in the stock market, does not mean it’s time to call it quits. As the saying goes, ‘it’s always darkest before dawn’.
How long until I start making money again?
With what has transpired this year, you may forget that the S&P 500 was close to 4,800 (now at ~3,500) in January of this year.
Now I will admit I have no idea when the S&P 500 will get back to that 4,800 level, but I’m very confident we will reach that level again at some point in the future.
Let’s say it takes 3-years for the S&P 500 to get back to 4,800. How does that impact you as an investor?
You would average 12% per year, over 3-years. That is an unbelievable return and another reason I’m staying invested.
When we are in a down market, you will hear from countless ‘experts’ that there is more damage to be done and that something will break.
They may be right, but I’m here to remind you that nobody knows nothing.
As Morgan Housel put it in his latest post (link below), “Pessimism always sounds smarter than optimism because optimism sounds like a sales pitch while pessimism sounds like someone trying to help you.”
What these ‘experts’ don’t know is your individual situation.
It gets back to controlling what you can control.
Earning a great income, saving at least 10% of your income, investing what you can, and, most importantly, living a life you want to live.
There will always be reasons not to invest.
But everything in this game is temporary, even when it feels permanent.
Good Reads:
https://bigthink.com/progress/pessimism-is-a-barrier-to-progress/
https://collabfund.com/blog/little-rules-about-big-things/
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.