Updated: Jan 3, 2021
In the last 20 years, the U.S. economy has seen some pretty extraordinary events: The “Dot-com Bubble”; the 2008 housing crisis; the longest bull market in U.S. history. And if that roller coaster was not enough, we were all greeted in 2020 by the COVID-19 pandemic that changed our lives forever. If you look at how the S&P 500 (the largest 500 public companies in the U.S., a common benchmark for “the market”) performed for any year in the last 20, you are going to see starkly different returns.
S&P 500 annual returns 2000-2019
This market index returned 32.3% in 2013, and a horrendous -36.8% in 2008. Whether you know anything about investing or not, anyone would wish they had enjoyed the returns of 2013 and avoided the losses of 2008. 2020 has been even more volatile. In January, the S&P 500 hit an all-time high, only to lose 30% of its value by March.
What is an investor to do in such a volatile market? Astonishingly, if someone started investing in the beginning of 2000 and simply bought the S&P 500, holding their investment through the end of 2019, they would have earned a 5.97% return. In fact, since the Great Depression, the S&P 500 has generated average annual returns of over 9.5%! When it comes to investing, it is crucial to take a long-term approach rather than focusing on short periods of time.
Let’s take the last 20 years of the S&P 500 a step further in a couple scenarios. Let’s say an investor starting in 2000 had purchased $10,000 of an index fund tracking the S&P 500’s performance. That $10,000 would have tripled and become nearly $32,000 by the end of that 20 year period. And that is if the investor had just invested the $10,000 and never touched it. If the same investor had been contributing $100 monthly into the S&P 500 index fund, their original $10,000 would have become nearly $117,000! You can see the results of these scenarios below, as shown on Portfolio Visualizer. There are three powerful factors at play in this scenario: dollar cost averaging, compounding interest, and time. We will dive further into these topics more in near future blog posts, so stay tuned!
S&P 500 performance 2000-2019
S&P 500 performance 2000-2019 with fixed monthly $100 contribution
So many investors try and fail to find a winning strategy that promises to make them rich fast and “beat the market.” They feel like their strategy is on fire when the market is up and that they are failing when the market crashes. Very few of us can be like Warren Buffett, who has consistently generated returns at or better than the market for decades. However, anyone can learn some basic principles and tools which will allow them to consistently earn strong returns over time. Investing can be remarkably simple, and involves far more an understanding of human psychology than technical analysis. This blog will help unpack the basics, tips, and tricks of investing that can help you achieve your financial goals.
The bottom line: the market is a scary place, but armed with a little bit of knowledge, confidence, and discipline, anyone can succeed as an investor over time. We are excited for you to join us as we delve into the simple, profound principles that can equip you to succeed as an investor at any stage of experience. So keep calm and read on!
Disclaimer: Past performance is no guarantee of future results, which may vary. Investing involves risk, including possible loss of principal. The value of investments and the income derived from them may fluctuate over time. All portfolio returns and scenarios presented are hypothetical and backtested. The opinions and views expressed by the author do not constitute investment advice or recommendation, and are provided solely for informational purposes, and are not an offer to buy or sell any securities.