Sometimes, people like me can make investing seem way too complicated.
Hopefully not me, personally – over the last dozen years of my professional life, I’ve aimed to make investing as simple as possible for our readers and members – but the finance industry writ large is built on algebra, jargon and a lack of transparency!
After all, if you could do it yourself, why would you need to pay massive fees (every year, and often calculated as a percentage of your portfolio!) to someone in a fancy office to do it for you?
(Before the financial advisers write in, there is absolutely a role for advice on getting started, staying the course, and making sure you have your financial house in order. But the aggregate fees charged by the industry are astronomical, compared to the value most people will get, over time. And yes, partly that’s the compliance burden… a topic for another day!)
Anyway… back to my point: investing doesn’t need to be anywhere near as complicated as it can seem, from the outside.
To wit, today’s headline, ‘How good are stocks, hey?’, comes not from me, or from a member of the investing team.
Instead it comes from Ed, the producer extraordinaire of one of our podcasts, The Good Oil.
We were chatting (by text message… Ed is a bit younger than me!) about investing, this morning. We talked about how easy it is to buy shares, how good low-cost, broad index-tracking ETFs are, and the beauty of shares compounding away in the background without us having to do any work to make it happen.
Which is when Ed replied: “How good are stocks, hey?”.
Now, in the interests of full disclosure, Ed did suggest we make that the new Motley Fool company slogan… which I’m not sure will pass muster with the marketers… but he’s not wrong.
And sometimes it’s as simple as that.
No, not entirely: you do have to open a brokerage account, and choose your ETFs and/or shares, of course. And you do have to have the patience to leave them alone to compound away over time (resisting the urge to tinker can be hard!), hopefully adding money regularly.
But that’s really not much, when you think about it.
Then all you have to do is wait. Go to work, hang out with friends, play with the kids, go for a walk, watch TV… just live your life, and let your shares do their thing.
To what end?
Well, here are two stats I’ve shared over and over:
- A hypothetical $10,000 invested in an ASX-tracking ETF three decades earlier would have turned into more than $130,000 by June 30 last year.
- A hypothetical $10,000 invested in an ETF tracking the US market three decades earlier would have turned into more than $176,000 by June 30 last year.
Absolutely astonishing numbers. And how could you have got that return?
Just by reinvesting the dividends and otherwise leaving it alone.
And if you’d added more, over the duration, you’d have even more, today.
How good are stocks, hey?
Now, the corporate cop would – very reasonably – expect me to mention that shares can be (are!) volatile over the short term. And some lose money. A few lose a lot of money.
All true. That’s the risk you take if you try to speculate over short time periods and/or don’t diversify your portfolio appropriately.
And there is no guarantee that the future will look like the past, either.
So there’s that.
But also, unless humanity has reached its creative and productive peak, I think it’s pretty likely that we’ll continue to find new ways to improve our lives and the lives of others, and that our system of democratic capitalism is far from done.
In which case?
In which case, I think it’s likely that, to quote Twain again, history may not repeat, but it’ll rhyme.
If it does, that means there are gains on offer for the patient, consistent, diversified investor.
How good are stocks, hey?
Fool on!