Andrew Hallam
03.05.2019

The Biggest Challenge That Investors Face In These Uncertain Times
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Recent forecasts make the future look bleak. An organization in the Middle East has vowed to limit the sale of oil to the west. Oil prices could quadruple. They’re expecting daylong line-ups at petrol stations when you go to fuel your car.

Inflation is expected to climb to double digits. The United States president might be impeached. Home mortgage interest rates could hit 18 percent or higher. Experts say we’ve never been closer to a nuclear war. As for your investments, as I write this, the Dow Jones Industrials stocks are at 26,550 points. Based on these uncertain times, forecasters say it will take 18 years for the Dow to break above that level.

Before you sell your investments and dive into a bunker hole, let me share one thing: I haven’t really given you a forecast for the future. I just explained the past. In 1973, oil prices soared during a Middle East-led embargo. People lined up for hours just to fuel their cars. President Nixon was impeached in 1974. Inflation hit double digits in the late 1970s. In the early 1980s, home mortgage interest rates peaked at 20 percent. We almost had a nuclear war in 1962, during the Cuban Missile Crisis. And the Dow Jones Industrials were at the same point level in 1965 as they were in 1982. According to the DQYDJ Return calculator, if somebody had invested a lump sum in the S&P 500 in 1962, and if they reinvested all dividends, they wouldn’t have beaten inflation over the next 17 years.

Those were uncertain times. Unfortunately, no matter the era, people believe that the most uncertain time is the one their facing now. People in the 1920s, 1930s, 1940s, and in every decade since believed they were living during history’s most uncertain time. This relates to us today, and the perceived threat to our investments. But here’s what’s important. The biggest threat to our money looks into our eyes every morning as we gaze into the mirror. That’s right. How you respond to dire economic news has the biggest effect on how your investment will perform.

So here’s a little secret. Build a diversified portfolio of low-cost ETFs. If you’re working, add money to that portfolio every single month. Ignore news about Brexit. Ignore news about Donald Trump. Ignore everyone who forecasts the direction of the market. As Warren Buffett says, “Stock market forecasters exist to make fortune tellers look good.”

Nor should investors focus on a single year’s return. In fact, they shouldn’t pay attention to a single decade either. Your investment duration, after all, spans beyond your working lifetime. It spans as long as you’ll be living. While you’re working, you should keep investing every month. And when you retire, you shouldn’t withdraw more than 4 percent during a single calendar year. That’s why a single calendar year (or even a decade’s return) shouldn’t matter to anyone.

Now let’s look back to that awful period that I opened this story with: 1960-1990. Yes, the Dow Jones Industrials were at the same point level in 1965 that they were at in 1982. That’s 17 years without a point level gain. Fears of nuclear war were rampant. Inflation ran wild. A president was impeached and, at one point, people in the early 1970s lined up for hours just to fuel their cars. But from 1960-1990, the U.S. stock market averaged 10.2 percent per year. In a stock market index, that would have turned $10,000 into $184,267. Rolling 30-year returns, after 1960, were also strong, despite fears of uncertainty. That doesn’t mean every decade posted strong returns. But every 30-year period did, and that’s far more important.

Why Every Investor Needs To Think, Long-Term

Source: DQYDJ, S&P 500 Return calculator; The above data starts and ends mid-February for each year
Beginning January 1926, ending January 2019; Sources: Bogleheads S&P 500 returns for 1926-2017 and Morningstar for 2018 return.

Unfortunately, few investors earned those returns. Instead, they let economic forecasts dictate their behaviour. As a result, they often bought high and they sold on lows. So here’s that tip again: Invest every month in a portfolio of low-cost index funds. Ignore market forecasts and frightening talks about uncertain times. Uncertainty is the norm–and it always has been. Thinking otherwise is staggeringly naïve.

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas

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Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.