Financial Planning Fridays #46: Stocks Are the Best Long-Term Investments

We have had lots of conversations with our clients on what are safe vs. risky investments. Though the answer may surprise you, this debate is not even close. For long-term goals, stocks are, by far, the safest investment. For the non-believers, let me show you a few statistics from history.

This chart shows the percentage of time that an investment in the S&P 500 is positive over different time periods. Stocks are positive most of the time, even over just a one-year period. However, as you hold on to your investments for longer lengths of time- stocks have historically been positive more than 90% of the time starting in year five.

Consequently, a good rule of thumb may be to keep investments meant to be used in the next five years in money market, short-term bonds, and cash.

However, for any goals that are five years or longer, stocks are very likely going to have a positive return by the time you need the funds.

Most of our clients have goals for either themselves or their families that are more than 30 years away or take place over the course of 30 or more years. Historically, the asset class that has typically given us the best chance, and best returns, to reach these goals has been stocks.

This chart shows the best case and worst case returns for the S&P 500 every 10-, 20-, and 30-year period since 1936. The average return during this time was about 11% per year.
More than 97% of 10-year periods were positive with the worst 10 year stretch down 3.43%. However, if you held on for 20 years, the worst-case scenario was a positive 4.79%, annually.

Now, if you had held the S&P 500 index for the worst possible 30 years- your return still would have been more than 9%! Let me emphasize that- the worst 30-year return for the S&P 500 was still more than 9% per year!

Nine percent per year compounded over 30 years means that a $1 Million investment will turn into more than $13 Million!
The safest way to reach your long-term goals has been to be an owner of the largest, most successful companies over the past 87 years.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.