We should all own stocks! This strikes me as an evidence, now!
Why? Simple facts…
Since the depth of the economic crisis in February 2009, US stocks had an amazing run, generating a cumulated total return (with reinvested dividends) of 184%. That equates to an astounding annualized return of 19.3%. Compare that the a 5 year CD interest of 2.25% per year (the best currently available) or to a 20 year long term bond yielding 2.41% per year as of yesterday morning…That is quite a performance!
And yet, if you trust the recent poll by Gallup, only 54% of American households are invested in stocks (…)
either directly, or through a mutual fund or a self directed 401(k) or an IRA. That level is near an
More than half Americans lost a “once is a lifetime opportunity” to improve their financial situation and build some level wealth cushion.
Of course, 19.3% is not an ordinary return that you can expect from the market in the years to come. And there will be, no doubt about it, a mean reversion with few years to come of bearish market and low to negative market return.
Of course, anytime normal individual investors like you and me warm up to the idea of investing and put their savings to work, a major crisis strikes and shatters their dreams. Black Monday is still in the collective memories when the market lost 22.6% in one single day in October 12th, 1987. More recently, the most patients of Nasdaq enthusiasts of 1997-2000 had to wait a decade to recover their tech bubble losses. 6 years ago, the S&P 500 lost 57% of its value between October 9th 2008 and March 9th, 2009. Who wants to lose 22% of his savings in a single day or more than half in 6 months? That is quite a traumatic experience.
But, since 1928, stocks have consistently outperformed any other form of financial assets generating historical returns close to 10% per year for the S&P500. And as this excellent video from IFA demonstrates, markets have proven an astounding resilience against all sorts of crises and disasters that all seemed at a certain point daunting if not
10% per year, now that is a nice payback. It is substantially above the inflation rates that we have known since the mid-80s. It is above any pay raise that most
Let’s do the maths. If you invest $20,000 at the age of 25 and let your investment compound at 10% without adding any subsequent savings, you will have:
– $40,000 by the age of 32- $80,000 by the age of 39 – $160,000 by the age of 46 -$320,000 by the age of 53 -$640,000 by age of 60
By the time you retire in your mid-sixties, you are a
Two additional thoughts before concluding this post:
1. The famed destiny of Warren Buffett, the self made oracle of Omaha. He now sits on a fortune estimated at $73B after a very long and successful investment career. One stunning fact that few people are aware of is that 99.2% of this fortune was made after he reached the age of 50. And 95.5% was made after he reached 60 years old. Warren Buffett’s epitomizes the ideal of long term investors, sticking to a high quality portfolio of securities and letting time do its magic. Warren did not become suddenly brilliant at 50 or 60. He chose good assets and kept them long enough to reap these amazing returns.
2. A recent Credit Suisse Global Wealth Report generated a considerable buzz around the widening global wealth inequalities with the top 1% of the world’s richest people now owning more than half of the global wealth. A key insight behind the rising social inequalities is precisely the propensity to own financial assets and stocks in particular. Their rate of return tends to exceed inflation and salary increases. Owning stocks and mimicking the top 1% is a good way for you to benefit from these macro-trends and pull yourself progressively out of the middle class daily stress. It is a good ambition to have and to nurture,
My conclusion will be about my own financial resolutions. I have decided more than 3 years ago to save an increasing percentage of my revenue to build a high quality diversified stock portfolio as part of my 401(k). My goal for 2015 is to dedicate at least 10% of my salary every month to these savings. The winds have been very favorable since I started. I know I will eventually meet some storms and crises. I prepare myself mentally to confront them and stick with this long term ambition of growing my portfolio and securing my financial future.
What about you? Do you own stocks? What is your saving rate and what are your goals?