What will happen if I invest in the stock market?

At the beginning if 1994, if you invested $1000 in an S&P 500 fund, you might have been sad the next year. You invested at $482 per share. A year later, your shares were worth $470 and your $1000 portfolio was only worth $985. If you'd given up and sold those shares, you'd have lost money. 

But let's say you didn't... in fact you decided to try again and invest another $1000. You buy in at $470 and wait a year. Good news - by 1996 your $1000 is worth $1350! And your 1994 "loser" shares are worth $1319 - you're ahead! You just had to stick it out another year. 

Of course, a 35% increase in one year isn't normal, that's oddly good. But a 2% decrease isn't normal either - most of the time, the stock market grows from the beginning to end of the year.

If you want to predict what this next year will be like, you can't do better than a dart board. Will 2024 be another 2008 (bad) or a 2021 (great)? If you take the average of all these years, you get about 10%... but only two of the years are 10%! The others are higher, lower, lower for a few years in a row, higher for a few years in a row, flat like 4% or 8%. 

Here's how it's gone the last 40 years. This is why we have to be okay with the ups and downs of the market, because historically, it has been up and down: 




Another thing to notice about this chart: Even the bad years, where the market went down, it still went up. That sad 1994 investor I wrote about who lost money their first year still got in at $482 a share. Imagine now they felt five years later, in 1998, when their shares were worth $980. They had over $2000! Even the investors who are bad at timing end up good when they get in early.

Time in the market is better than timing the market. History can't predict the future, but if the future looks anything like history, we know it's unpredictable, and we strongly suspect it will recover. 





Comments