🫵 Why you should invest right now

Hey hey, happy Monday! 

It’s the final week of the THE CHART PACK limited series! Subscribe to my newsletter to get the last dose of charts and commentary compliments of Chart Kid Matt and yours truly (unless we decide to revive it…).

Today, a 6-minute diatribe for you & your loved ones who can’t seem to invest (or re-invest) in the stock market.

It’s hard, it’s confusing, it’s uncomfortable. But you need to do it for your future well-being.

Smash the button below to share OptimistiCallie with a friend 😊

Fixed income expertise

The first step is always the hardest.

A friend asks me for stock tips. I tell them I’m not that kind of market nerd, and that nobody can reliably predict which names will blow it out of the water.

Then, I ask if they’ve at least opened a 401K to get that sweet company match (100% return on investment, hard to beat!). Are you actually investing right now?

More often than not, the answer is a sheepish no, but… followed by every excuse in the book.

Look, I get it. Opening brokerage accounts can be a pain. Then, you have to transfer money into that account and wade through thousands of intimidating tickers to find the one that suits you and your ambitions.

And what even is the right investment?! The world loves Nvidia. Oracle is soaring 40% one day and plunging 7% the next. Yet single-stock investing isn’t for the faint of heart, and every Wall Street expert seems to be touting index funds (those exchange-traded baskets of hundreds of stocks).

Analysis paralysis shuts you down, and today turns into tomorrow.

Even seasoned pros can become slaves to their emotions. Pull your money out of stocks, and suddenly, you can’t seem to overcome the mental hump to buy back in (even though you promised yourself you would).

This week’s post is for everybody suffering in this indecisive purgatory.

Successful investing depends on compounding, and compounding thrives on time.

The best time to overcome this hurdle is today, and I’ll give you four reasons why.

You can’t climb the corporate ladder to wealth.

Growing up, I was always told the key to a good life was to get a white-collar job and work my way up the chain. And there’s some truth there, in that a substantial income is often the first step to building wealth.

But it’s not the only step. The mind-blowing wealth you see around you these days hasn't exactly come from clocking in overtime.

Here's a chart of growth in wages vs. stock prices over every economic expansion since 1970:

Working a job was once enough to pay the bills and help you save up a nice little nest egg. But in recent decades, owning — or investing — has been the key to building formidable wealth.

Now, I get why you’re scowling. This chart is both inspiring and depressing, because it also tells the story of a widening wealth gap. It exemplifies corporate America's focus on juicing stock prices over reinvesting in their businesses, which isn't the healthiest path for our society.

I’ve thought about this chart more lately after reading my colleague Nick Maguilli’s excellent post on how the bar to building wealth keeps moving higher. In this age of AI and rampant automation, wage growth could keep losing ground to capital appreciation, and ownership becomes even more important for your path to wealth. Especially if you think a robot could take your job.

You need to control what you can control. Be an owner in any way that makes sense for your own life and financial situation.

Bulls and bears don’t exist.

No, I’m not saying this in a “birds don’t exist” conspiracy theory type of way.

What I mean is that the smartest investors don’t think in a zero-sum fashion, even though the world loves to organize complex ideas into neat little boxes.

(Insert Wall Street expert) He’s a bull, he thinks the S&P 500 will rise to 7,000. Why Chad McDad, the chief market strategist at Chadco Bank, thinks the Dow will drop 50%. Please click here to read more, we’ll project an air of certainty just because we need that sweet ad revenue.

No serious money manager on Wall Street truly believes in going all in or out on investments like chips at a poker table. Neither should you.

You don’t have to exclusively be a bull or a bear in this environment. You can choose both.

Why? Because your goals and plans are unique. You are not Chad McDad from Chadco Bank, who gets a paycheck based on how precise his imaginary crystal ball is. Most of us aren’t even investing for bragging rights or Reddit karma. We just want financial stability years into the future. To make a certain above-inflation return for long enough.

Often, that looks like investing and saving at the same time. Playing offense and defense. Keeping your own needs in mind while remembering that it’s often psychologically advantageous to invest on a periodic schedule, not on price.

So if you’re waiting for some conviction, or if you think you need to understand the Federal Reserve’s rate projections before throwing some cash in an index fund, know that sexy takes don’t make for great investing strategies.

In fact, the most prominent Wall Street bulls and bears often get it wrong.

You can’t buy low and sell high.

Don’t even try. Study how the market has moved over history, and you’ll learn that momentum will work against your best timing intentions every time.

Since 1950, the S&P 500 – an index of the 500 largest public companies on U.S. exchanges – has spent more time within spitting distance (2%) of record highs than it has in crashes (20% or more below record highs). Promise yourself you’ll buy when the stock market falls 10%, and you’ll be waiting an average of two years if history is any guide. And for much of that time, share prices will be rising, which makes buying back in more expensive.

Rising for good reasons, too. If corporate earnings and the economy are growing, those record highs may be justified. Or, investors are sniffing out a new trend that hasn’t become obvious yet. Sometimes, markets just gather enough momentum to keep reaching new highs, regardless of how stable the ground feels beneath your feet.

This is what trips up a lot of experienced investors. They sell, convinced the market is about to fall off a cliff, and then can’t decide when to buy back in as prices move away from them. From there, it’s a psychological snowball. Trust me, I have conversations like this all the time.

Throw this advice out the window. More often than not, you’ll be buying high, and still, the odds may be in your favor. In fact, S&P 500 returns after record highs have been stronger over certain timeframes.

Even if you are the unlucky investor who buys in at a market peak, you may find that your money recovers quicker than you think. Over the past 75 years, the S&P 500 has taken an average of two years to recoup its losses after each drop of 20% or more.

You can’t afford to sit out of the stock market in anticipation of bad news, especially when you think prices couldn’t possibly move higher.

Because they often do.

This is supposed to hurt.

Investing is the act of putting your money at risk in hopes of receiving a return in the future.

Naturally, the future is uncertain. Embracing this uncertainty isn’t supposed to be comfortable.

I usually find comfort in numbers, so let me try to quantify the pain for you.

On a day-to-day basis, the stock market’s fate has been a coin flip. Since 1950, the S&P 500 has climbed on 53% of days and fallen on 47% of days.

Sometimes, the losses pile up into larger drops. The S&P 500 has dropped 5% or more every 10 months on average over the past 75 years. 87% of those are pesky selloffs between 5 to 20% that can roil your mind, but ultimately are blips on the radar in the grand scheme of things.

However, the S&P has dropped 20% or more 11 times over that period. These are the big market crashes that jolt the world off its axis. And if you’re investing for retirement, you can expect to go through a handful of these along your journey. Usually, if you can keep your wits about yourself and continue investing consistently, you can weather these storms and come out better in the end (thanks to those rare moments when you can buy low).

Easier said than done, of course. A lot of these big drops align with major world events, like economic crises and war. They’re the kind of events you can just ignore by logging out of social media or ignoring your brokerage account. See for yourself: I’ve compiled a history of the worst ones here.

Over time, cycles of joy and pain have been the heartbeat of the American stock market. 

Yet time has healed all wounds (so far).

Over the past 70 years, we've endured wars, recessions, political turmoil, financial crises, health crises, humanitarian crises, 13 recessions and 11 bear markets. Still, over that timeframe, U.S. stocks have delivered ~8% average annual returns.

That’s the painful side of risk, baby. But you can’t avoid this pain. Risk goes hand in hand with reward. Investing is supposed to hurt.

You – and your portfolio – are more resilient than you think.

Thanks for reading!

Callie

Like what you just read? Share it with a friend, pretty please 😊