The S&P 500 Always Wins
The longer your time frame, the better stocks are.
This is not financial advice, and is meant purely for entertainment and informative purposes only.
Back to Stocks!
After a week away from stocks to talk about bonds, The Simple Stock Report is back talking stocks! This week, we’re going to take a look at the S&P 500 performance over different time periods, and why it pays to always be bullish and own US Stocks. Let’s dig into the numbers.
The S&P 500 Trades Higher on 53% of Trading Days
Simply by being invested in the stock market on any given day are the odds in your favor. While these are slim odds, and the magnitude of up or down is not measured here, the market generally moves higher. Of course there are periods of time where it seems impossible for stocks to go up, days, weeks, or months of a market draw down, but generally more days are up than down.
The S&P Trades Higher in 65% of Months
You’re going to start seeing a trend here real soon, but once again the S&P 500 is higher in most months. This should come as no surprise, since it trades higher most days. Put a bunch of trading days into a month and boom, you’re probably going to be higher. Of course, as I will say with each of these scenarios, this is no guarantee, but the odds are in your favor.
The S&P 500 Trades Higher in 73% of Years
Okay I think you’re getting the point here, but I have two more data points I want to share. What we saw in 2022 with the market down substantially is super rare. It is easy to have recency bias and become super bearish because everyone else is, but when everyone else is screaming “fire” it pays to buy stocks. Some smart person once said the most wealth is created in bear markets.
The S&P 500 Trades Higher in 80% of Decades
There have been very few decades where the S&P 500 was lower at the end than at the beginning. This is because, as I think we are learning, stocks generally go up. This is why very smart people tell investors to stick to an S&P 500 index fund, and very dumb investors like myself don’t listen. One last data point, and it is my favorite one.
The S&P 500 has Traded Higher in 100% of 20-Year Time Periods
If you go back in time and buy the S&P 500 at ANY point, you will have made money 20-years later. There are a few times that you would have done miserably, but generally you did very well for yourself.
So why is this? Why do stocks, specifically the S&P 500, usually go up?
Economic Growth = Stocks Go Up
This fun chart shows the S&P 500 total returns versus US GDP since 1990. As you can see, while not perfectly correlated, there is a correlation between GDP and the S&P 500. This makes sense, stocks do well when the economy is doing well. Often the stock market moves a lot more drastically than US GDP, but they move very close with one another.
This chart also aligns with Warren Buffett’s “bet on America” strategy. Warren has always been a big proponent of betting on America, and has advised many of his followers to do the same. This is an idea I have always believed in, wanting to buy the absolute best American companies for my own portfolio. The same has definitely worked for Warren.
Mo’ Money, Mo’ Returns
This is a chart that a lot of people in the world of finance do not like, but the economist in me just can’t ignore. There is what we will call a “not weak” correlation between the M2 money supply and the level of the S&P 500. As a refresher, the M2 money supply is all money in the economy, so currency in circulation, deposits at banks, that sort of stuff.
This chart is a classic debate of the chicken or the egg. Do people have more money to spend because the economy is growing and stocks are going up, or do stocks go up because more money is in the economy so they have more to spend, save, invest, etc. I’ve always argued M2 propels the economy and stocks, but you could interpret this differently.
The Takeaway
So why do people like me spend all this time researching companies to buy to build into a portfolio instead of just being lazy and having the odds in our favor? In my case, it is because I enjoy it. I am not (yet) managing money for other people, and do not have to benchmark myself to any index. I buy the best companies in important industries and wait. Sure there will come a time I need to sell and research new businesses, something S&P 500 index holders don’t need to do, but I enjoy the process.
Investing is the one thing where the average person who puts no effort into it will likely outperform someone like myself. Depending on how you view it, that is truly incredible. So if you want the best piece of advice possible, that is to stop reading The Simple Stock Report and buy an S&P 500 index fund and never think about it ever again. Of course, you absolutely should not follow this advice, but I would totally understand.