As we approach Thanksgiving, there are many reasons to be thankful. One of the things at the top of my list is our modern global capital markets. The ability to retire by putting money to work in markets which provide a long term positive real return is a very recent development on the long scale of humanity. Just as importantly, we can take money out with daily liquidity to fund retirement or other needs- though, unfortunately, this liquidity also facilitates less constructive activities like market timing and day trading.
As someone involved in the markets daily, it’s easy for me to take the markets for granted. I was reminded that not everyone understands the long term power of markets when I heard this question:
“I understand I need to save for the future, but the idea of market volatility is very distressing. What if the market is having a downturn just when I plan to retire and my investments are losing money when I need them in 20 or 30 years?”
If you retire 30 years from now, your positions may be off their all time highs, but the likelihood of actually being down on diversified positions you buy today is vanishingly unlikely. Despite the best justifications from financial media, usually there’s no particularly good for stocks to be up or down a half a percent in a given day. But as the days turn to years and the years turn to decades, stocks have almost always gone up.
In fact, I can’t find a single 30 year periods where a broad stock index has experienced a negative return. Even finding a losing ten year period is difficult- and after those bad periods generally very attractive returns are soon to follow.
These attractive long-term returns above inflation are really an afterthought of our modern capital markets, not the purpose. Equity markets exist to finance the continued rise of civilization. Money under your mattress is just money, but when invested in the stock market it becomes capital- something truly magical. The returns from the market that allow us to retire are just a byproduct of the fact that capital accomplishes something. The inexorable rise of the stock market over time is not reflective of numbers bouncing up and down on a screen, it’s reflective of capital doing its work to continue to build out the greatest civilization the world has ever seen.
There will always be market downturns, corporate missteps, accounting scandals and ponzi schemes, but even in a tough year like 2022, we can be thankful for the historical returns in the market. Will the magic continue? As long as productivity growth continues, technology advances, and inflation stays under control, the answer is likely yes.
We may have to measure things in different ways- for example, as demographic trends slow, we might have to measure the strength of the economy by GDP per capita rather than absolute GDP. Nevertheless, we continue to enjoy the best quality of life any generation has ever achieved. Even kings and queens of ages past didn’t have access to things like air conditioning, modern sanitation, immediate access to food from any season, and streaming entertainment. All of these things (financed by capital markets) are truly something to be thankful for.
As another year begins to close, we here at Telarray are thankful for the markets, but most importantly, we’re thankful for you. We believe we meaningfully impact our client’s lives, but without your trust and confidence, we could not do the work we do. We will be thinking of you this holiday season and look forward to what the coming year may bring- but there’s still a lot to celebrate before we draw the curtain on 2022.