When you’re a kid, rollercoasters are scary. I have a very vivid memory circa 1993 of my parents talking me into riding the Batman rollercoaster at Six Flags in Texas, the world’s first inverted rollercoaster. I wanted the fun and bragging rights, but I was also scared about getting on. Fortunately, my parents knew I would regret not riding and managed to get me on, and of course, I thought it was awesome.
Investing in equities is a very similar experience. You have to ride out the emotional ups and downs, but in the end you get to enjoy the benefits of sharing in the earnings of the world economy. Here are the answers to the two most common objections to this notion:
Can I just put money in a savings account?
You know how your grandparents always talked about going to the movies for a nickel when they were kids? Well, the last movie I saw cost $10.50, so it’s safe to say that the purchasing power of a dollar definitely fades over time. And while moderate inflation is good for the economy, it will erode your hard-earned savings.
Even if you were born in the mid 1980’s, you have seen inflation of over 122% during your lifetime. So it may make you feel warm and fuzzy that your principal investment is “safe” in a savings account, but that’s not actually true at all. You will retain the same nominal amount, but after inflation, the purchasing power of each dollar will decline and impede the accumulation of wealth.
What if the stock market tanks again?
If history is any indication, it probably will. I obviously wasn’t alive for the Great Depression of 1929, and I was only two in 1987. But I remember the tech bubble of 2000 and graduated college just after the housing bubble of 2008. I was fortunate enough to land a job, but so many other millennials were not as lucky. And the lasting effects of that market downturn have somewhat defined the millennial generation—we fully realize that a college degree doesn’t guarantee a career or stability, just massive amounts of student debt. Given this reality, it’s no wonder that younger investors are a bit gun shy when it comes to investing.
So if we are all but certain that the stock market will tank again, why put our money into it? We invest in the stock market because the earning power is incomparable over the long term. For example, if you had invested in the S&P 500 in October of 2007, just before the downturn, and kept your money invested through this week, you would still be up 35%. There is not a savings account in the world that can give that kind of return.
So even though investing in the stock market can be scary, it’s worth the ride. Over the long term, your investments will grow and allow you to accumulate wealth at a rate that outpaces inflation and any other investment type.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.