Why market volatility is just an opportunity for growth

We’re all scared of the unknown.
Well then, get to know it so that you no longer have to fear it.

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”
-Marie Curie

If you’re afraid of investing in the stock market, let’s consider some scenarios based on widely available historical data on the last 100 years or so of the stock market.

Let’s say you’re a 22 year old who makes regular contributions of $500 per month into your 401K/IRA. (The current IRA limit is $5500 per year.)

1. If you invest strictly in equities, with about a 10% average return, you should end up with $380,000.

2. For bonds, at about a 5% return, you should end up with about $200,000. About half as much as equities.

3. For CDs, at 1%, you should have about $130,000.

But, 20 years is for a cop. What about the average worker who saves the same $500/month for 40 years?

1. Equities: over $3 million!!
2. Bonds: about $750,000. That’s not half of equities. That’s only a quarter!
3. CD: less than $300,000

Do you see the huge differences between the different investment choices? Do you see the even bigger differences that time makes?!

Investing moderate amounts, steadily, over a long period of time is the easiest route to wealth. Compound interest makes sure of that.

The market, aka stock market, is volatile in the short term. It looks risky if you look at it day to day, month to month.

(It’s fine if you look it that often, as I do, especially in a bull market. I try not to look at it or think about it when it’s a bear market even though I know it will eventually go back up.)

But, look at it with an eye for results 10, 20, or 30 years down the line, it only goes up.

Market volatility is nothing to be fearful of if you understand that the market has always gone up in the long run. Volatility then becomes an opportunity for growth rather than something to be avoided.

Go where the data takes you. Take advantage of the opportunity for growth. Invest in the stock market.