The S&P 500 is on its best way to reaching its next target, 10,000. Before we get too excited about this ambitious milestone, let me clarify one small fact: This target is only due in 18 years time.
If geometric averages of historical stock market returns are any indicator, you will be surprised to find out that equities appreciate by 9.5% per year on average. After witnessing two of the most devastating stock market crises in recent years, this sounds like a far-fetched theory. Allow me to put these events into perspective, though.
Both the Dow Jones Industrial Average and the S&P 500 have evolved in a predictable super-cycle: While the overall direction of the super-cycle has been upward, it was regularly interrupted by phases of tumultuous standstill and uncertainty. Take the mid-1960’s until end of the 1970’s for example. Some of you may still remember the energy crisis, the Great Stagflation, and high interest rates. It was a phase of roughly 15 years in which we were seemingly unable to do any progress. Where was the S&P 500 at that time? It stood at a shy 100.
Despite these difficulties, markets had found their way back to growth and innovation: Computer technologies emerged and soon after the world-wide web. Today, we are emerging out of two shocking financial crises yet again. After the dot-com bubble burst and the Great Recession made us hold our breath, the market is finally ripe for its next wave of innovators. The super-cycle is rolling again.
My view is that we have a number of waves of change getting ready to erupt on the world stage. A whole new industry is getting ready to be born and, with it, new jobs and investment opportunities. Are we running out of oil? My bet is that in less than 20 years we won’t care. We will be driving electric cars that are far superior to what we have today in every way, from power sources that are not oil-based.
Artificial intelligence? Virtual reality? There are whole new industries that are waiting to be born. In 1980 there were few who saw the rise of personal computers, and even fewer who envisioned the internet. There are hundreds of new businesses that couldn’t even exist just 20 years ago. I am not sure where the new jobs will come from, but they will. Just as they did in 1975.
Twenty years ago, China was seen as a huge military threat. Now we are worried about them not buying our bonds and becoming an economic power. We are on the verge of remarkable changes in so many areas of our world and we better be invested while that happens. I do not know which industries will dominate, let alone individual companies. So my best bet is to go with the broad S&P 500 directly.
With the S&P 500 flirting with the 2,000 mark, the time it takes to reach 10,000 from today onwards is exactly 17.73 years. That’s right, we need less than 18 years to reach this huge milestone, and those who have missed out, will be wondering why they had not invested despite the bad times here and there. Try out the calculation yourself with this compound interest calculator. It is unlikely going to be a straight run up because we are dealing with emotions on a large scale.
Nevertheless, do not allow these emotions to distract you for the greater happening. The world is progressing, and so should your portfolio.
Interrupted with Fear
Stock market gyrations will continue to offer tremendous buying opportunities during downturns (the time to invest even more). During these phases of uncertainty and sell-offs, pundits will undoubtedly raise their voices and talk you out of your position. They will reason out how manipulated the current recovery was, or that a crises of colossal magnitude was still upon us. It will sound very convincing to you indeed. Let them be.
I ask you. What value, besides a little evening entertainment, have they provided you? I assume that these people have talked you out of potentially very rewarding investments which you would be enjoying right now, had you not listened to their preaching. You should critically think about this and take consequences.
Even Larger Returns
I believe that your returns can be amplified even further if you are exploiting both the ups and downs. Trend Architect does precisely that: Sending you trading signals at significant turning points in the market to help you stay out of adverse moves and yet capture strong and sustained trends.
I have been actively navigating the volatility in a way that very few professionally managed strategies can compete with. This is because I adhere to a few core rules of trend following and ensure that my strategy provides above-average returns in any market condition.