If your New Year’s Resolution for 2016 was to get into the stock market, you might be worried that you made the wrong move. Fear not! A little historical perspective and a long-term point of view will set you right. Get invested, stay invested, don’t start judging your investments until at least 2019.
Rule Breaker Investing
New Year’s Resolution: Get Invested! And Ignore the Market Drop
It's the Rule Breaker Investing Podcast with Motley Fool Co-Founder, David Gardner. Welcome back to Rule Breaker Investing. I'm David Gardner. I'm going to keep saying it, Happy New Year. It's not that far into 2016. I'm so glad you've taken a little bit of time this week and joined in with me fellow Rule Breaker. Every new year brings thousands of new members to the Motley Fool. My services in particular, Motley Fool Stock Advisor, Motley Fool Rule Breakers, and Motley Fool Supernova, which is opening this month, which is a rare and special treat. I'm going to talk about that at the end of the podcast, but those services are brimming, positively brimming with newcomers. I love it, of course, because the goal of the Motley Fool is to help the world invest better. When we say the world, that means we want everybody to be investing. We think everybody should be invested to the extent everyone has capital. Everyone should own at least one stock or fund, get invested. It's very purposeful for us, but why does it happen in January? What's so special about January? For example, why did Simon & Schuster for every book that we published with Simon & Schuster over the years always insists that we publish it in January? Well, right, because many of us somewhere around January 1st, every year, resolve to do some important things better in the year ahead. I understand that I do the same thing, too, in last week's podcast. Focus was in part an homage to resolving to be more awesome with the new year. What other month out of the year do we ever actually think 12 months ahead? I can't think of any other month where we all together say, "You know, I'm really going to think longer term and have some goals for the whole year ahead." I think most of the time we're down on the runway, it's hard to get up even 1,000 feet up above and see what's going on. We have to consciously prick ourselves to do that at different points in the year. Really, there's this amazing thing about January every year where it seems like collectively all of us are thinking a little bit longer term and resolving to be more awesome. I know I'm never more awesome than January. There's never a better David Gardner, a better me than in January. For example, in January, this is something I started doing last year. I succeeded, so I'm doing it again, even though I'm an Ena file and I love wine, not so much beer but wine, I don't drink anything in January. Just to try it out, just to have a booze-less free entry into the new year. Even though I do love wine, I think I'm slightly more awesome that I don't actually drink anything all January long. I feel great. I sometimes resolve to do other things. For example, spend more time with my PlayStation. More time with my Xbox. That's an important resolution for me. I say that partly joking. I know a lot of you are talking about eating better or exercising more, losing weight. For me though, I always want to make sure that I have something fun, something that sounds fun in my new year's resolutions. You know, something I'm actually looking forward to, so as a video gamer and a gamer, I sometimes will resolve to spend more time with my PlayStation. I think I'm going to try to do that in 2016. There it is. January. It's a special month. We're all slightly more awesome than we are the rest of the year. We try to keep it going as long as we can. When the market rises, when the stock market rises early in a new year, understandably, we may conclude that our investment resolutions were well placed. You think to yourself, I'm so glad I finally said I'm going to get on top of this whole money thing, and if the stock market's up, it's behind you, you feel great. You get real and immediate results, which is the same kind of result you can expect if you're doing a good job eating better or exercising more. You really get real and immediate results, but sometimes the stock market isn't so cooperative. Been paying attention the past week or two, the S&B 500 has dropped about 6% before we're even two weeks into the new year, which may seem crazy, and it rarely happens, right? Indeed, it is pretty unusual, but it does happen, and it has happened before, and it's going to happen again. In fact, five years ago, this month, I was just looking back just about the same thing happened five years ago, kicking off 2011. The Nasdaq lost 5% of its total value in less than a month, and that 5% drop was magnified quite a bit more in some of our favorite stocks. In fact, at the start of that new year, Netflix lost about a quarter of its value as we started 2011. Boston Beer lost more than 10% in a single day early on in 2011. Happy New Year, Sam Adams. It doesn't feel good at all when you had resolved to become a successful investor in 2011, and things start like that for you. So, I guess now seems like a good time to remind you that if you're a foolish investor, and that's with a capital F, a foolish investor, you're not well served by focusing on two week or two month returns. I've read postings on our Motley Fool discussion boards where members are judging their financial resolutions based on what's happening in January, or sometimes the best, you know, through March for better or for worse. So, I'm going to ask you to make a commitment with me to begin judging your 2016 financial resolutions. You ready for this? To begin judging them in January of 2019. The three years hence. So, allow yourself time to prove out meaningful results, to learn, to stay focused on the only term that counts, and that's the long term, of course, you know, whether we're about to zoom up or down 20%, whether we're talking about an individual stock or the market overall. That's a relatively random, short-term movement, and that should not in any way change your resolutions. Indeed, I would say you dishonor your own good sense if you overreact to one quarter or one week of investing, and I say that whether you're up or this year anyway, down so far. So, my message this week is relatively simple, pretty direct, here it is. Get invested. I don't know that there's a more compelling and excellent achievement that I personally, and that we here at the Motley Fool can bring you, and literally, everyone you know, to, to get invested. I think it's a fair presumption that if you're listening to this or any of our Motley Fool podcasts, you may be already are invested, or if you're not yet invested, you do have a heart for it. You recognize the importance of it. So I bet I'm preaching to the choir for many of our Motley Fool listeners this week when I say get invested, but if you already are, then of course, I'm going to urge you to think about the person in your family, the person who's closest to you, family or friend, who's not invested, and get them invested. Help us all as fools fulfill our purpose to get the whole world invested. Carpe Diem, that's really the spirit of this phrase certainly made famous to those who remember Dead Poets Society, that Robin Williams vehicle. I think it was 1990s, one of the better movies in the 1990s. Carpe Diem, in fact, I was doing a little bit of homework this week. It was Horace, the Roman poet who in book one of his odes, in approximately 23 preps, exactly 23 BC first wrote the phrase Carpe Diem, but that's really the spirit of this week's message. You know, the market averages about a 9 to 11% historical annualized return. That's the American stock market's annualized return over the last century or so. Even if you're not confident that that will repeat itself over the next century, and I think it's a perfectly valid expectation that it will. But even if you think, ah, 9% sounds high, everything's maturing, we're getting more of a global village, a more mature global economy, maybe 6%. You know what, with inflation at about 1%, your real return of 5% points, if that's your lower expectation is still so compelling. If you just play the math forward of being invested, it's such a good place to be. And you think about all of those people who either are without capital because they haven't effectively saved or maybe they do have capital, but it's just sitting there uninvested or underinvested for the long term, get invested, seize the day. Here's some numbers. If you get started early, the earlier you get started, let's take $1,000 per year at the age of 20. So a 20 year old investing $1,000 per year for 45 years, that will come at an 11% annualized rate to $986,600, again, 45 years from age 20 to age 65. You just invested, do the math with me $1,000 per year, you just invested $45,000 and you never even increased it beyond that thousand for this simple mathematical example. You just kept it invested and $986,600 is where you come out and your money was working for you. You weren't having to work that hard. Now, by contrast, let's instead take a 45 year old today and let's see how the 45 year old gets to 65. Let's say it's the same 11% return. Let's say that 45 year old has $3,000 to put away per month in earnest. More money than a 20 year old would have $3,000 per year, ages 45 to 65, that comes to $192,600. You invested $60,000 and you ended up with about $190,000 by age 65 when you waited 25 years to start. Get invested. You know, if you invest just $100 per month for 30 years at that same 11% rate, you're going to end up with $280,450, $100 per month at a 9% rate, by the way, because 11% is on the higher end of most people's expectations at a 9% rate, that's still $183,074. I've got my calculator app this week. If you invest just $150 per month, so just jack it up, $50 more and earn 15% per year, which by the way is below Motleyful's stock advisor's annualized return in the 12 years history of our service, you're going to end up with more than a million dollars. There's an interesting site if you've been to New York City or maybe lived there, but at any time, the last couple of decades, and I can't even identify where in Manhattan it is because I go through the city perhaps four or five times a year, but there is somewhere there. There's a calculator that is showing our national debt. And if you've seen this, it's kind of a big billboard position somewhere. I think it's in the lower half of Manhattan. It's showing constantly numbers running up because, of course, our national debt is ever increasing. And so you just sit there in real time and you're watching the money count up, and it makes quite an impression on you. It's a fairly compelling site. I don't even know whose billboard it is, and I'm assuming it's still there, but if it isn't, it was there for a good 15 years or so, and it's still counting up whether it's there or not. But let's change contexts for a sec. Let's pretend that that amount of money isn't running up, but running down. And it's not the federal debt. It's actually your future net worth because for every second, literally, that you wait to get invested with money, your future expected net worth is declining. I hope that's not taken as a dreary message. I hope it's a car pay DM message. I hope, even though I bet you've already started the power of the compounding clock in your life as an investor, as you cast your eye about those around you at work, at home, in the marketplace, please do feel free to see that image of money net worth counting down constantly for anybody around you who is not invested. Again, there are very few things that return even 5% or more a year. The stock market has done about double that over the course of the last century. It's sad sometimes to think how market coverage makes it sound scary, makes it sound like a great big gambling machine, or for a lot of people, they think they'll never figure it out. To think how many people are not becoming part of our ownership culture who don't have the benefit simply because they didn't have somebody to tap them on the shoulder and get them clued in maybe right around January of each year to think about how important and valuable it is in their life to be part of the game and not sitting outside of the game. There you go. There's a mental image for you. Picture that Manhattan billboard, but it's counting down for every second that anybody you know waits to get invested in the compounding power of the stock market. We're coming to a close year. I do want to mention, especially, we don't open up Motley Fool Supernova very often. This week, Motley Fool Supernova is opening up, and I'm really excited about it. I hope you'll consider looking at the service, especially if you're already a Motley Fool Stock Advisor or Rule Breakers member. It's an exciting time for Motley Fool Supernova. Not only has each of our real money portfolios, and when you join as a member, you get to see all of them and participate in those if you like. But not only have they done well and beaten the market, but we're about to start a new one. But looking to get started with the new year, our Odyssey 2 mission is right there for you. Let me just mention the URL supernovaradio.fool.com. So supernovaradio.fool.com. If you want to see more about that and the first investments that they're considering for that real money portfolio, just so you know, the Odyssey 2 mission has the equivalent of $1,000 in investable assets every two weeks throughout the year. So simulating regular investment dollar cost averaging, if you will, into the market. This is real money, and our members can mirror that with their own real money. And that's what Motley Fool Supernova is all about, and especially the Odyssey 2 mission. I think it's an exciting time if you want to get on board here at the start of the new year. Okay, in closing now, next week, next week, I'm finally going to address a question that I've gotten, I think, in both of my mailbags so far, and something that is a very natural and understandable good question to ask, which is, how do we score management? How do you know if you have good leaders? What are the things that we look for in a good CEO versus not? And I'll only tip my hand this far by saying, for me, it's all about Yoda. We'll talk about that next week. I hope you have an excellent week. Get invested, Fool on. As always, people on this program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com. [music] [BLANK_AUDIO]