My goal of this post is to give readers confidence that their money is safe by investing long-term in the stock market.

I think we’ve all heard someone say “My {insert relative or acquaintance} invested in the stock market and lost everything, so they refuse to buy stocks again.” Some of those people will say they’ll now only invest in real estate, gold, businesses, or (all too often) not at all. My response to that:

• Were they invested in stocks or the stock market? If they were invested in the market (like VFIAX, an S&P 500 index fund) odds are they never lost 50% from its peak value and would’ve doubled it by holding for 10 years. If they were buying individual stocks, like Enron or Blockbuster, maybe they did lose just about everything. Bet on the stock market, and you’ll win. Don’t gamble on individual stocks. One may go the way of Blockbuster.
• If they’re not investing in the market regularly, are they investing in anything regularly? I am always looking at buying real estate, but until I find properties that make sense, I park my cash in and regularly buy into the stock market. If you’re sitting on cash for years at a time and not investing, you’re probably missing out on growth opportunity. Spend less, invest more, and invest often.
• If you choose not to invest in the market, make sure you know a lot about what you are investing in. I don’t know a thing about running small businesses, so I won’t be gambling my money on buying one anytime soon. I wouldn’t recommend others to be passive investors in one either, unless they really know how to analyze them and have good reason to trust whoever is managing the money. Remember that no one cares more about your money than you do. Whatever your investments are in, become an expert and watch your money carefully.

Statistics

Unless you’ve been living under a rock, you’ve been hearing for the last couple years that the market keeps hitting all-time highs. Those not too familiar with the market may think “It’s too expensive to buy right now. I’ll buy when it gets cheaper.” In reality, all-time highs are perfectly normal. As JL Collins would say “The market always goes up.” Don’t believe me?

The S&P 500 has spent 31.9% of its life within 5% of its (up to then) all time high. It has spent 23.9% of its life within 2% of its (up to then) all time high. It has spent 15.7% of its life at a new all time high. So on average about 1 of every 6.5 days the market closes at an all-time high. Sounds pretty normal huh?

Over the last 60+ years of the S&P 500, the longest period between all-time highs was 7.5 years (1973-1980). During the Great Recession, it took 5.5 years for the market to bounce back (Oct 9, 2007 – Mar 28, 2013). So share prices trend upwards over long periods of time.

The chart below represents the hypothetical performance of a $10,000 investment in VFIAX (a popular S&P 500 index fund), from October 1, 2007 to October 1, 2017. Like I said above, it took 5.5 years for the S&P 500 to return to its highest price after the Great Recession, but you can see the investment returned to its highest value in 3.5 years. This is because funds pay dividends, which in turn get reinvested in more shares, then those shares also increase in value and earn their own dividends (aka compounding).

$10,000 invested in VFIAX 30 years ago would be worth $206k today. Don’t try to time the market. Instead go for time in the market. 

Final Remarks

I started drafting this post about a month ago. Just so happens that the Dow Jones closed this week by losing 665 points, or about 2.5% of its value. Pretty crushing for a single day. Don’t be scared. Sounds like an invitation to me to buy more. 10 years from now, I’ll be wishing I could’ve bought even more at last weeks prices.