The summer after my senior year of high school, I had $1000. I'd saved up babysitting and summer job money. I had a meal plan at school and not much to buy, so my family helped me invest it in a mutual fund. I was hoping that when I got out of college and needed to really start life, that fund would be my first down payment on a car, deposit on rent, wardrobe for an office job.
Four years later I graduated and my $1000 had grown to... $600!
So I swore off investing for a really long time.
Now, I could say more about that particular fund and the fees involved, but I now understand more about why my fund did so poorly. Here's what the S&P 500 looked like while I was in college:
That's a pretty bad 5 year snapshot. I didn't pick the WORST time to invest... 2000, right at the top of the dot com bubble. But I didn't pick the best time either. So what does that mean? Am I bad at timing? Is the stock market an losing enterprise?
To answer those questions lets look at other 5 year snapshots. Here's what the world would have done if I'd said, in 2003, "You know what? I'm not going to give up. I'm going to try again!"
Here's what the NEXT 5-year chunk would look like... investing in 2009
Here's what it looks like if someone invested 5 years ago from today:
Here's what would have happened if I'd just left my $800 in there and not touched it:
As you can see from those charts, there are plenty of times when your money will grow in just a month, or a year. Most of the time, after 5 years, it grows. But not always.
I could pick any month on the S&P since 1990.
There is a 65% chance that, if I'd invested in that month, I'd have more money the next month.
There is a 78% chance that I'd have more money after 5 years.
There is a 90% chance that I'd have more money after 10 years.
I see a lot of people ask questions like... "I have money now. I know I need to buy a car in 2-5 years. Can I invest what I have?"
To answer that question, look back in time. Pick a few example months. History doesn't predict the future, but that's really all we have to look at.
Ask yourself what you'd do if the market tanks, and it's time to buy your car. What will you do? Take out a loan? Wait a few more years for it to recover? Buy a cheaper car? If I was fine with all those ideas then sure, I'd invest my car savings. I know that there's a CHANCE this month is like March 2020... $1000.
Maybe this month will be like February 2004, and your $100 is going to be worth $64 in 5 years. that's sad. Since 1990 there have been 7 different times in the last 40 years where, if you'd invested $100 on the first of the month, you'd have less than $80 five years later.
But maybe this month will be like December 2016, and you'll have twice as much money? There have been 63 months like that. A lot more than 7! That's why a lot of people think it's worth the risk to invest.
I hope this table isn't too complicated, but it takes every month from August 1990 to July 2023, and looks at what happened if you'd invested in an S&P 500 stock on the 1st of the month. How many of those months would have gotten you $100-110 after only a month? 251. That's the most common scenario. But there's also a lot of months where it's less than $100. Not quite as many, only 135, but it's common. There have been times when you could triple your money and have over $300 in just five years.
| Start with $100… | 1 month | 6 months | 1 year | 5 years | 10 years | 20 years |
|---|
| Under $60 | 0 | 1 | 2 | 0 | 1 | 0 |
| $60 to $70 | 0 | 4 | 6 | 1 | 5 | 0 |
| $70 to $80 | 0 | 4 | 14 | 6 | 14 | 0 |
| $80 to $90 | 5 | 19 | 25 | 38 | 6 | 0 |
| $90 to $100 | 135 | 74 | 38 | 38 | 2 | 0 |
| $100 to $110 | 251 | 176 | 96 | 17 | 9 | 0 |
| $110 to $120 | 4 | 92 | 116 | 8 | 6 | 0 |
| $120 to $140 | 0 | 20 | 80 | 20 | 10 | 0 |
| $140 to $160 | 0 | 0 | 7 | 50 | 19 | 0 |
| $160 to $180 | 0 | 0 | 0 | 53 | 51 | 1 |
| $180 to $200 | 0 | 0 | 0 | 42 | 25 | 0 |
| $200 to $300 | 0 | 0 | 0 | 60 | 91 | 48 |
| $300 to $400 | 0 | 0 | 0 | 3 | 33 | 76 |
| $400 to $500 | 0 | 0 | 0 | 0 | 4 | 31 |
| $500 to $600 | 0 | 0 | 0 | 0 | 0 | 0 |
That's why you'll get a lot of answers like "it depends" when you ask how long it takes to make money in stocks. Sometimes it takes a month. Sometimes it takes over 10 years. We don't know the future. But we know it tends to go up, and it usually works. That's why we keep investing.
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