All You Need Are Market Indexes and a Gun
“But isn’t investing in the stock market risky?”
It’s only a matter of minutes before this comes out of the mouth of whomever I’m speaking about investing with, that’s around my age. Millennials, I tell you..
It’s ironic that due to their fear of losing money, their case-resting remarks are that they’re going to just leave their money in the bank. Then probably buy a house.
I’ve explored how over a number of years purchasing and owning a home is more most costly than buying into the stock market. I’ve also pointed occasionally due to basic math that holding money in your bank account bares a huge opportunity cost. Interest earned on a GIC is around 1-2%, inflation averages around 3% – it’s suggested it’s actually decently higher – and a total market index averages a 7% return. Do the math.
Dick measuring aside, they are not wrong that investing can be risky.. In a sense.
I was reminded how quickly the market can devastate investors when I looked up the history of a particular stock. Pathfinder Minerals PLC.
I don’t know what caused that upward spike – or the swiftly following apocalyptic-style downward spiral – but it goes to show what can happen.
Again, without really looking into why that happened it’s hard to be sure about this next recommendation. Even if buying into this particular company stock before the upward climb and drop wasn’t speculation . Even if careful analysis was done, and it appeared a prudent buy.. There is still the chance of this happening. Because stocks are influenced by the rash behavior of people.
When I first got into investing, I bought a few single company stocks. 5 of them I believe. Complete speculation based on advice from friends. 4 of them are down now, and have been pretty much since I first bought. The remaining 1 is up nearly 600%.
Since then I’ve smartened up and moved towards following a more reliable and principal protecting strategy.
Market index guarantee..
First, a real quick refresher on market indexes. A market index is a portion of the stock market. A group of stocks. These groups can be tracked by industry, by performance, by dividend yield, by size, etc. Almost any weird combination can be thrown together. There are also indexes that track the entire market.
Now the idea behind indexes is that they increase exposure, reduce volatility, and generally lower cost of operation. They are also used as a benchmark for individual stocks or portfolios.
More exposure, lower risk and cost of op. All sounds pretty damn tasty doesn’t it? It should.
Major indexes should be the foundation of your portfolio, that is the opinion of this blog writer.
Who again, is not a licensed professional of any sort.. Yet. So for now, take what you will from my messages. And no future messages saying I ruined your life.
They are safer, and generally provide adequate returns.
For example, VTI, a total market ETF has a 10 year average return of 8.3%. Sure beats a GIC from the green chair bank.
$1,000 a month invested in this fund over 25 years would make you a millionaire.
Downside & Risk..
After accepting one fact, there’s really many downsides or risk to be honest.
The fact you need to keep in mind, is that your market index is not going to see 600% return. Though when a Medical Marijuana market ETF comes out.. We might see the day where pigs fly..
Aside from the fact that market indexes are modest in their return and growth – which is the way true investing works – there’s not much of a downside.
There is actually very little risk in market indexes, especially total market indexes. This is because, when you buy a fund like VTI, for example, you are literally buying into every business on the stock market. You are putting your money on the fact that business owners are greedy capitalists who are ever in search of increasing profits. The odds you are playing, are on the fact people will keep spending money and needing to go to jobs at businesses so they can pay their bills – and debt – off.
You are also placing your money there will the knowledge that competition for the almighty dollar allows strong businesses to grow and bad businesses to die off and be cleansed from the market.
Of course there will be better years, and there will be expectedly be dark days. As long as you stay in for the long term, and don’t sell when the market is down. You can’t really lose money.
**NOT LEGAL ADVICE ;)**
There’s really only one scenario in which you will lose money investing in market indexes..
Yes, if society and the world completely falls apart and all out anarchy breaks lose and the market goes to 0 you will lose your money.
Or if we somehow switch completely to a different currency – see bitcoin and cryptocurrency – and immediately totally debase fiat currency (paper money).
The likelihood of both events are much lower than the doomers who stock their basements with water and bullets would lead you to believe. Even with Trump as president of the US and bitcoin reaching record highs lately and surpassing the price of gold.
It’s unhealthy to plan your future around worse case scenarios. Though being overly optimistic is also naive.
Because smart people hope for the best and plan for the worst, I introduce you to the best plan B to secure your future survival..
Buy a gun
Seriously, buy a gun if you’re worried. Because it is so unlikely over the long term that you lose your future financial foundation investing in indexes. And in the event that you do lose all your money, it means the world is in shambles. Your bank account, your GICs, your house, and whatever other asset you might have or be thinking is safer than the market, will be worth nothing at that point. Hell, even if you are stashing gold, in an end of the world scenario a gun is much better asset.
I got a little dramatic towards the end, but the point remains, as long as you’re investing correctly and buying into a market index your money will be relatively safe in the market.
Of course, you still need to educate yourself on the basics of finances. Which, since it is such a large part of our life I don’t know why anyone wouldn’t allocate some time and resources to. Otherwise seek a fee based advisor.
You’re losing money if you have it sitting in the bank or a GIC because it ain’t beating inflation. Equally, you’re missing out on profits if you’ve got an advisor who’s charging you more than 1.5-2% in my opinion. Unless their providing +9% returns.
All you ever need, market indexes and a gun. Below is a picture of the lifetime history of VTI’s returns
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