It’s Thursday, and today’s post from Vanessa is extra cute. See, she’s a girl, and she does math. It’s all so adorable. If you all need me, I’ll be the guy sleeping on the couch.
A week or so ago the stock market surged and my portfolio hit a new milestone. I was over the moon and tweeted this:
Why would anyone NOT invest in the stock market — it’s basically free money.
— Vanessa Page (@vanessasmoney) June 9, 2014
Twitter did not respond well and the general response was that I was too young to know what I was talking about and that there’s an equity bubble. Yes, fine, I’ll hoard my money under my mattress and/or buy gold random twitter people whose opinions mean squat to me.
Here’s the thing that irked me the most — I’m not that young. I don’t reveal my exact age online because, you know, privacy concerns and whatnot of strangers knowing my exact birth date but, suffice to say, I’m not 19 years old. I’m educated, have been reading up on investing and finance since I was in my teens and, oh yeah, I lived through The Great Recession. I was a teenager and telling people about the US housing bubble and would tut furiously at real estate shows while doing my math homework.
A couple years of learning, a few finance and economics classes and experience investing in mutual funds, ETFs and individual stocks and honestly, I feel confident in my TL;DR of the stock market — it’s free money.
I am not naive enough to think that the stock market will go up forever or that I will not lose money in the short-term. One of my biggest fears about investing (that I would lose all my money), was quickly quashed by the owner of this little blog here — if the stock market ever goes to zero, you have bigger worries than your money. And so I keep shoveling my money into investment vehicles to capture long-term growth.
Say I’m the world’s most hands-off investor — I take $50 000 and I stick it in an S&P500 ETF and say “see you in 50 years!”. Now, let’s not talk about historical growth and all that nonsense because, like common sense would dictate, past performance doesn’t predict future performance. No. Let’s imagine that I picked the absolute worst day to invest in the S&P500 — October 12th, 2007 — right before the stock market crash that helped cause The Great Recession. On that day, the index was at 1561.80. A year later it had fallen to about 900 before bottoming out at around 683.
Seeing as I have basic math skills and know that 683 is less than 1561, I understand how people “lost money”. Fact of that matter is, unless those losses are realized, the money isn’t actually gone. Sure your net worth would have fallen by 56% but, since the investment was made for long-term growth, you can ignore temporary dips and keep living your life.
Today the S&P500 closed around 1957. Even investing at the peak of the market and suffering a terrible crash results in you having more money today than you did in October 2007. With an initial investment of $50 000, you can now cash out at $62 651 — a return of 25% (about 3.89% annual return) not including dividends.
Regardless of the “imminent crash” and “equity bubble” and whatever else the fear mongerers are mongering these days, my money is staying safely in the stock market — the best place I know — to make free money. And yours should too.