By: Dividend Sensei
Recently the Dow closed above 20,000, which isn’t important. However, I came across an article that highlighted an alarming fact. A shocking 54% of Americans have no exposure to the stock market, including 401Ks, pensions, and IRAs. Worst still? The figure among Millenials, specifically those 18-35, is only 33%!
Now I can understand the reasons for these disasterously low figures, (and no I’m not being hyperbolic, this is truly a disaster). After all the financial crisis, with its 50% stock market slide, and tepid economic recovery since, has left many people feeling that A: they can’t afford to invest anything, and B: Wall Street is a rigged casino that is too dangerous to partake in.
Of course in reality that couldn’t be further from the truth. The market is the single greatest long-term wealth creator in human history, and for most people the ONLY way they’ll ever achieve true wealth and financial independence.
And as for the game being “rigged”? In the short-term it mostly is, IF you are a speculator, ie gambler, looking to score a quick profit. BUT if you are a true long-term investor, then the game is actually rigged in your favor!
What about the common concerns about “too much political/economic/interest rate uncertainty”? Guess what, the market has been climbing a Wall of worry for centuries, and still mostly gone up and to the right, (70% of the time in fact). In fact since 1871 the S&P 500, including dividend reinvestment, is up a staggering 519,000 fold! In that time guess what happened?
12 banking crises, 27 recessions, 3 depressions, 2 world wars, the cold war, numerous smaller wars, two massive oil shocks, and 3 major flu pandemics (including one that killed 20% of the world).
In other words, for those of you who think that Donald Trump makes the market too dangerous to invest in? Guess what, a market that has enriched investors through the rise and fall of Hitler, Stalin and Mao can survive four or even eight years of The Donald.
But what about the market being expensive? Ready to crash? Well guess what: market timing doesn’t work. In fact, it can be the biggest obstacle to you ever truly becoming wealth. In fact, here’s a shocking fact for you. Between 1930 and 2016 the S&P 500 rose 10,055% in value. BUT what if you had missed just the top 10 best market days each decade. That’s 85 days out of 17,200? How much would that have hurt your returns? By a staggering 99.6%! In other words you’d have made 38%, and not even kept up with inflation.
And don’t forget that there are always high quality dividend growth stocks on sale, even now with the market at all time highs. In fact here are 37 to get you started!
What about a lack of resources? Sure, for many people simply making ends meet is very tough, especially if you have debts, as most people, and especially Millenials do. But guess what, if you think that’s an excuse it’s not. After all, just cutting out a few daily luxuries is usually enough to save you up to $650/month that could go towards investing. And if you’re young? Well then not investing is squandering the most powerful asset you have; time.
Consider this: If you invest just $100/month starting at 18, and into nothing more exciting/complicated as diversified broad market index ETF, (like Charles Schwab’s Broad Market ETF, ticker symbold SCHB), and got a 9% CAGR return (market’s historical return is 9.1%) then after 50 years you’d have $1,066,129.63. Of course if you don’t have 50 years, you just need to save more, say that $650/month for 30 years, which would leave you with $1,158,886.84.
So the bottom line is: the stock market is NOT a dangerous casino, it’s your last, best hope to ever become financially independent. Market timing doesn’t work, and you literally risk your entire future if you try it. Buy high-quality dividend growth stocks on sale, buy on dips, and don’t sell unless the investment thesis breaks. Don’t fear crashes, embrace them, because being able to buy into a crash, ie “be greedy when others are fearful” is literally the difference between a good investor and a great investor.