The Only Rule of Investing
It's hard to reflect on an experience when you're in the middle of it. But the pandemic has been with us long enough to finally teach me something. Last month brought the one year anniversary of the pandemic. Our lives changed instantly and profoundly, and we'll be telling stories about life under quarantine to our grandchildren. But with vaccines now widely available, we may be close to getting something of our old lives back.
Personally, I'm starting to actually feel the pandemic experience passing. It's strange, like I've been in a submarine for a year with no captain and no information on when we might surface. Now I feel like we're finally coming up. Of all the thoughts and emotions this change has brought, I was most surprised by a simple observation I had about investing. In a way, the pandemic has simplified my philosophy to a familiar, three-syllable sound bite.
Just do it
No, I'm not joking. And I'm not being glib. This is it. I know what you're thinking: How can a 30-year old tagline for selling sneakers be my new investing philosophy? Simple. Take a look at what the S&P 500 has done over the last five years. Source: Google news
The S&P 500 has nearly doubled since April 2016. Just a quick reminder that during this time period:
- The Covid crisis paralyzed parts of the global economy...
- A U.S. president hinted that he might not abide by the results of a presidential election...
- Insurrectionists stormed the U.S. Capitol...
…and what did the markets do? They kept bouncing back. If you invested in the most basic ETF for the S&P five years ago, you would today have roughly twice as much as you put in. If you invested in that ETF at any point in the last five years, you would now have more money than you put in. The only way you would have less than what you put in is if you invested during a peak in that graph above and then bailed during one of the dips. So maybe I need to flesh out my new philosophy a tiny bit:
Just do it -And then leave it alone
I believe in the power of the markets. If you are going to invest, you need to believe in the power of the markets. Part of that power you need to believe in is the markets' ability to bounce back. In the last 20 years the markets have bounced back from the Covid crisis, the Great Recession, and 9/11. That's not a bad track record.