On this episode of "On the Money" we discuss long-term stock returns and lessons investors can learn from market volatility.
The Economy and Interest Rates
“Everyone’s waiting on an interest rate increase; people that borrow money don’t like it, but people that have been saving the last 10 years, people in CD’s and Savings Accounts and Bonds, have really lamented the low interest rates and are welcoming higher rates.”
- Paul A. Ruedi
People make the claim that there is a direct correlation between interest rates and stock prices; there is really not a strong relationship in general.
- David Ruedi, CFP®, RICP®
Long-Term Compound Stock Returns (10:22)
I was born in February of 1989 so I’m 29 years old. If you look at the performance of the S&P 500 over the period from Feb 1989 to March 2018 (that’s the latest full month of data we have) the total return over my lifetime was over 1,000%; it was actually 1,572%.*
- Paul R. Ruedi, CFP®
The other thing that’s cool about that timeframe being about 30 years: that’s about the amount of time people work at their job. So if you start looking at that timeframe, that’s the type of stuff you can expect over your lifetime if you just start investing day 1 when you get your first job and first paycheck. You don’t have to do a lot to experience a fantastic growth of wealth.
- David Ruedi, CFP®, RICP®
I looked at all of the 30 year periods for the S&P 500 and actually, the median return is about 11%*
- Paul A. Ruedi
When you are building financial plans, you can’t really bank on returns. You have to assume there is a whole range of outcomes; we don’t know where the stock market is going to go. So you can’t build a plan on performance.
- Paul R. Ruedi, CFP®
The worst 30 year period, at least in the last 100 years or so, was 8.47% per year compounded for the S&P 500 index. But that was during 1929 – 1958. So you could earn 8 ½% and have a horrible experience if you are on the retirement side of life and you are spending from your assets. So these long-term compounded returns are interesting, but it matters whether you are putting money away during those 30 years or spending from your portfolio.
- Paul A. Ruedi
[Behavior] is always undoing investors, not whether the returns are there to be earned, it’s just they didn’t get the gold out of the mine. These returns historically have been there but very few people earn the returns of their own investments because there are so many ways to get panicked out and to get surprised and begin following gurus and lose that faith, patienceand
discipline that is required to earn those returns.
- Paul A. Ruedi
Every successful investor I’ve ever met was goal-focused and plan-driven. Every failed investor I’ve ever met was market-focused and performance-driven.
- Paul A. Ruedi
Lessons from Stock Market Volatility (34:41)
There is no reward without risk. The reason stocks have those higher returns is because every now and then, they get unpredictable like we have seen recently.
- Paul R. Ruedi, CFP®
If you are investing in something that has a lot of certainty or a “guarantee”, it is probably guaranteeing mediocrity or very low returns.
- David Ruedi, CFP®, RICP®
It has been so long since we have had a major 2008-type decline that people seem to have forgotten they even happen.
- Paul R. Ruedi, CFP®
Caller Question: How Much Should I Have Saved at Different Ages? (39:45)
I think you should be wary of any “one-size-fits all” benchmark. How much you need to save can only be decided based on what your goals are and that can only be determined by a financial plan. Then it’s really a matter of how much you need to save to fund those goals.
- Paul R. Ruedi, CFP®
If I wanted to give a blanket statement to my peers about how much to save, I would say save as much as possible, as early as possible. If you save on the front end you may not have to save as much in your 30’s and 40’s and you get to enjoy your money a little bit more. So getting that head start can be huge.
- Paul R. Ruedi, CFP®
The stage before you have children is the time, if you can, to slam away as much money as you can, because it just gets a lot harder to save in your 30’s and 40’s when you have children and the expenses that go along with that.
- David Ruedi, CFP®, RICP®
On Bear Markets and Young Investors (48:00)
If you are accumulating stocks over your lifetime and your mission is to accumulate as much as possible, you shouldn’t be sad when the things you want to buy anyway go on a 30% off sale.
- Paul R. Ruedi, CFP®
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*Past performance is not an indication of future results. Examples are for illustrative purposes only and should not be considered personalized investment advice. You should not make any investment decisions without first consulting your own financial advisor and conducting your own research and due diligence.