Get into your time machine, travel back and ask your great-great grandmother to invest for you.
According to the Credit Suisse Global Investment Returns Yearbook, if your great-great-grandmother had invested one dollar in the US stock market in 1900, that would be worth just under $70,000 by the end of 2019, or $40,000 if you stripped out the effect of inflation (which increased by 3000% over that period.) In the UK if your great-great-grandmother had invested a pound in the UK stock market in 1900, that would be worth just under £40,000 in 2020. To invert that, £40,000 today, would have been worth £572 back in 1900. That is the power of long-term equity market investments.
You may say that actually you don’t have 120 years to play with but luckily you don’t need that long. The same Credit Suisse report reveals that over the past 120 years in the USA equities increased in value on average by 9.7% every year, and, if you strip out inflation, by 6.6% p.a. In the UK equities did almost as well increasing on average by 9.1% every year and adjusted for inflation 5.4% per year.
The average stock market return for a 10 year period is 9.2% according to Goldman Sachs analysing data over the past 140 years in the UK. The Standard and Poor 500 has done slightly better with an average annual return of 13.6%. This emphasises how important it is to keep your money in the market ideally for over 10 years.
We don’t have a time machine, but we do have today.
You can read more investment strategy in my book, 10 Things Everyone Needs to Know About Money.
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