How investments can grow over the years
Here we are in the final month of 2022. Characteristically, as we travel through the holidays, many of us spend time in reflection as we close one year and get ready to enter the next.
Maybe you reflect upon your accomplishments — or challenges — or maybe you simply feel more nostalgic while anticipating the new year.
As stated by the Father of Existentialism, Søren Kierkegaard, “Life can only be understood backwards; but it must be lived forwards.”
From the perspective of financial markets, 2022 has been a turbulent year. But as any good financial advisor may tell you, staying invested despite negative news has historically been profitable. To reenforce this point, let’s reflect on news events over the past 50 years and how disciplined investors who stayed invested were rewarded in the long term.
Each time period assumes $10,000 was invested on the first day of that year and reveals what the market value of that investment would be at the end of 2021 based on the performance of the S&P 500, assuming reinvestment of all dividends and capital gains. The S&P 500 is an index that tracks the performance of the 500 largest companies listed on stock exchanges in the United States.
Looking back 10 years to 2012, some of the devastating news stories included the attack on the U.S. Consulate in Bengazi and the horrible Sandy Hook Elementary School shooting. The market rate of return that year was 16%, and the value of a $10,000 investment would have grown to $46,257.
Going back further, it has been 20 years since 2002. During that year, the U.S. invaded Afghanistan, and the dot.com bubble burst. The market rate of return was -22.1%, and the value of a $10,000 investment would have grown to $61,685.
Now, think back to 1992 – 30 years ago. That was the year of the Chicago flood, Los Angeles riots and Hurricane Andrew. The market rate of return was 7.62%, and your $10,000 investment would have grown to $208,215.
Are these figures starting to catch your attention? Looking back 40 years takes us to 1982. Our country was in the midst of a severe recession, there was high inflation and the Middle East was in turmoil. The markets returned 21.55% that year, and your $10,000 investment would have grown to $1,052,703.
Okay, 50 years ago — 1972 — the Watergate scandal breaks, the Vietnam War continues and the Munich Olympics massacre terrorist attack was carried out. That year, the markets returned 19%, and your $10,000 investment would have grown to $1,975,778.
Charles Dickens advises that we reflect upon our present blessings, not on our past misfortunes. In anticipation of the Ghost of Christmas Future, I offer you this Irish toast: In the New Year, may your right hand always be stretched out in friendship, but never in want.
Wendy Bennett is a senior financial adviser at Bennett Associates Wealth Management in Butler.
