Zoom Out
July 3, 2022
Market looking too scary? Try zooming out.
A big reason people give for not wanting to invest in the stock market is they believe the market is too volatile and that their money won’t be safe. I understand why people feel this way, but let’s break it down a little.
First off, the only way to actually lose money in the stock market is by selling at a loss. Until you sell your stocks, any gains or losses are considered “unrealized.” That means that you actually still own the same amount of shares regardless of their value, and their value will continue to fluctuate as long as you own them.
Because I’m a believer in long term, boring old index investing, we can avoid a lot of the volatility that comes with trying to pick individual stocks and focus on the market as a whole. Here is an example of what I’m talking about, actual screen shots of a popular index (the S&P 500) from today.
S&P 500 in the last 6 months
Whoa!! This looks catastrophic! Losing that much money in such a short time would be terrifying! Wouldn’t it be better to just leave the money in a savings account where it’s safe?
To answer that question, let’s look at this Zoomed Out version.
S&P 500 since inception
This chart represents the S&P 500 since its inception. You’ll notice in this chart that there are dips but that the graph always trends up. The last big dip was 2008, many will remember this as the mortgage loan crisis that had the country in a panic. Make no mistake, it was a tough time for many people. But imagine if you had pulled your money out then? Imagine if you had just kept it in a “safe” savings account? Inflation would have eaten up any interest you earned from that account, but more importantly you would have missed out on that mountainous growth that happened in the years afterward.
No one can time the market, although many people make a living trying to! Since we can never predict when a downturn or upturn will happen, the best strategy for building wealth is to invest consistently over time. Develop a system that works for you, and once that system is set up, you can ignore the news! You can ignore all the “market experts” trying to scare you and just keep moving forward with your plan. A total stock market index fund with low fees is likely to return somewhere between 8-12% over any long period of time. This combined with the magic of compound interest will ensure that you are setting yourself up for success if you just ride the waves. Don’t you already have enough to stress about? Zoom out and let the market do the work for you.
