If you started investing in the S&P 500 over the past 5 years, 2022 has erased all your gains.
This chart shows a portfolio that’s been dollar-cost averaging into the S&P 500 since the beginning of 2018. COVID caused a small speed bump, but the market quickly shrugged it off. By late 2021, this investor was up 80% over 4 years, or 16% per year.
One year later (i.e. today), they’ve lost all their returns. Their portfolio has returned, essentially, 0% for 5 straight years. Ouch.
Sure, zero return is a lame result. But it’s especially painful after tasting the sweet nectar of 80% returns just one year before. Everything is relative, and humans innately compare current conditions against the past. That’s just how we roll.
But now it’s time to learn an important lesson. One of the maxims of The Best Interest is “when in doubt, zoom out” – hard as it might be. And the lesson here is: stocks are not a 5-year investment. Preferably, they’re a multi-decade investment. We need to zoom out to that timescale.
[But sometimes even multiple decades fall short of expectations. We’ve seen multiple ~20-year periods of zero return. They’re not common, but they happen (see the green line below).]
I’m still buying stocks as part of my retirement portfolio because I have >23 years (age 55) before I can possibly sell them. Over that period, the historical odds are in my favor.
And I’ll only sell a portion of those stocks at age 55. Most of the stocks I own today will be held for 30, 40, 50 years, or more. Over those time periods, the historical data looks phenomenal.
So here you are in 2022, a younger investor whose investment gains have been crushed this year. I see you. I get it. I know it stinks.
But I’m zooming out. And feeling great about it.
Source: bestinterest.blog