Ben Gran, The Motley Fool
5 min read
The S&P 500 index (SNPINDEX: ^GSPC) reached an all-time high in August, but many investors are feeling antsy. One widely watched valuation metric, the Shiller CAPE ratio, suggests that the benchmark index is historically expensive, which could be a warning sign for a new dot-com-style stock market crash and a prolonged bear market.
U.S. stocks have been on a strong run for the past 17 years. Ever since the depths of the Great Recession in January 2009, the S&P 500 has delivered a total return of 1,090%. Can this strong bull market possibly continue much longer? Anyone who follows the markets knows that good times don’t last forever.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Here’s the biggest lesson of stock market history: Long-term investors tend to win. If you can avoid the temptation to speculate or time the market — if you buy a diversified portfolio of quality stocks and leave your money alone to grow for five to 10 years or more — you’re likely to keep building wealth. That holds true even if there is a big stock market crash and a bear market that starts tomorrow, and even if you invest at what feels like the worst possible time.
Let’s look at the big picture of how long-term investors can position themselves for success today.
S&P 500: Average annual return of 10% for (almost) 100 years
Since 1928, the S&P 500 has delivered 10% average annual returns. That long-term average includes some of the worst events in human history, including World War II and the Great Depression. Even though terrible things were happening in the economy and in everyday life, in the long run, companies figured out how to adapt and innovate. People were resilient and creative. The economy healed, grew, and unleashed new wealth and opportunities.
In recent years, the S&P 500 has delivered even richer returns than this long-term average. The Vanguard S&P 500 ETF (NYSEMKT: VOO), an exchange-traded fund that tracks the index, has delivered annualized returns of about 15% in the 16 years since its inception in September 2010, and a one-year return of more than 19.5%. In that light, 10% annualized returns might not seem so impressive. But that 10% rate is enough to get rich from steady, long-term investing. If you keep investing $600 per month in stocks that earn a 10% average annual return, after 30 years, you’ll have $1.18 million.
