Stocks aren't scary despite their all-time highs
🔸 Plus: Scottish golf courses are falling into the sea 🔸 They stopped wearing ties at Goldman Sachs 🔸 1 in 5 people retire, and then unretire, because they didn’t save enough 🔸
Today’s 2-minute guide to demystifying money and making you richer
Why you shouldn’t be scared of the stock market despite its all-time highs.
Scottish golf courses are falling into the sea.
They stopped wearing ties at Goldman Sachs.
Bank exec says he spent $140,000 a year on cocaine.
25% of American teens invest in tech stocks.
1 in 5 people retire, and then go back to work, because they didn’t save enough.
“Narratives” are driving the stock market.
The markets, year to date
S&P 500: 5,160.64 ⬆️ 8.81%
FTSE 100: 7,961.21 ⬆️ 2.94%
Bitcoin: $70,914.80 ⬆️ 60.54%
GBP to USD: $1.2546 ⬇️ 1.43%
GBP to EUR: €1.1684 ⬆️ 1.31%
Why stocks aren't that scary
On March 25th, Moneyin2 asked, how should you invest when stocks hit an all-time high? Our answer: Ignore today’s headlines and invest for the long run. There will be many ups and downs along the way and trying to time them by buying low and selling high is, statistically, a fool’s game.
Two days later, the Bank of England warned that stocks were now so high there was a “risk of a sharp correction”. The bank’s Financial Policy Committee wrote:
“… the prices of many assets such as shares and bonds have gone up. Their value appears to be high relative to historical norms, in the context of risks to the economic outlook. That means there is a greater risk of a sharp fall in asset prices, which could ultimately make it more costly and difficult for UK households and businesses to borrow.”
This feels like something to worry about. But is it?
Here’s what the S&P 500 index of stocks looks like over the long run. There are two things to notice:
Over the long run, stocks go up.
The recent increase in stock prices looks steep and unsustainable. It’s nearly vertical — and that can’t last.
So it’s reasonable to think that maybe this isn’t the right time to start investing in stocks and shares. Maybe stay on the sidelines until prices go down …?
In fact, that is not how successful people behave when investing in stocks. The best strategy is to buy and hold for the long run — and by long run we mean years.
Two charts show why
The first comes from Ben Carlson, a wealth management guru. (We showed this to Moneyin2 readers last month.) It shows that even after the market hits an all-time high, it usually goes on to reach a new all-time high after that. Markets hit all-time highs on 6.7% of all trading days, Carlson says. The dots on this chart represent every time stocks hit a new record:
There were 16 “all-time highs” in the first couple of months of this year alone!
OK, but that first S&P 500 chart we showed you still looks very, very steep. Surely that’s not sustainable?
Our second chart comes from Macrotrends, and it shows the last 30 years of the S&P 500 using a logarithmic scale on the vertical axis. A log scale ignores the absolute changes in value in favour of showing percentage changes over time. A 20% rise decades ago would have been a small rise in absolute money terms. But a 20% rise today would be a huge shift in value. The log scale makes these differences equal:
Lo and behold, the S&P is not, generally, going exponentially vertical. Sure, it’s going up. But it’s following a general trend of percentage increases over time. Importantly, this chart makes a mockery of people who try to sell high — because they lose out on the gains that follow.
As the old saying goes, time in the market beats timing the market.
If your pension, ISA, or SIPP savings are going into a broad market fund like an S&P 500 ETF — leave it alone. Especially leave it alone in the dips. You’ll be fine.
Here’s our standard advice for new savers and investors. You can find them on the front page of Moneyin2’s site:
The Basics
And for dessert …
Scotland’s famous golf courses are falling into the sea, Bloomberg reports.
How the Goldman Sachs dress code has evolved over time. (They stopped wearing ties!)
Exec who worked on the trading floor of a major bank says he spent $140,000 a year on cocaine. (Do not do this!)
New trend for American teens: investing in stocks. They favour Tesla, Apple, Amazon and other tech stocks, the WSJ says. 25% of 13- to 17-year-olds have money in the market.
Up to 1 in 5 members of UK Baby Boom and Gen-X generations retire, and then go back to work later in life. The main reason: They didn’t save enough money.
“Narratives” are driving the stock market right now. The FT explains why that’s important, and Sam Ro explains why it’s not.
More from Moneyin2:
The savings account with a 25% return that young people routinely ignore
Ignore financial influencers - the stats say they’re usually wrong
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Photos: Capture Queen via Flickr; DaPuglet (Tina) via Flickr.