In June 2016, the Dow was at $17,736, which was already considered to be over-valued at the time. Two years later, in June of 2018, the Dow is at $25,316 (growth of nearly 20% a year) and people are really starting to wonder, “Is this the top? Should I get out of the market?” For me, I’m continuing to invest in 2018, and after reading all my points below, I’m thinking you’ll probably want to do the same.
8 Reasons I’m Continuing to Invest in 2018
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Liz and I have over $100,000 in the stock market currently. Am I sitting here anxious, watching the stock market every day to spot the early signs of an upcoming collapse?
Could it happen? Sure, but I’ve got plenty of reasons why I’m continuing to invest in 2018. Eight to be exact.
1) Confidence in the Market is High, But Not Too High
You know when things seem to go to hell in the stock market? What do you think happens just before that?
Look at 1929, the early 2000’s, and again in 2008, the confidence levels of investors were soaring. The market was going up and it seemed like nothing could stop it. And then, someone in China sneezes and all hell breaks loose. Confidence is shattered and millions of nay-sayers are born overnight. It can happen in an instant, which is why I’m not typically interested in what the floating heads have to say on CNBC (have you ever tried to watch these segments – I majored in finance, and I can’t even stand it!). Instead, I look at the consumer confidence index.
If confidence is too high, chances are the a drop-off in the market is coming soon. If it’s too low, recovery in the market will be slow. If it’s somewhere in the middle, I’m feeling comfortable.
Currently, according to the Conference Board, the consumer confidence index is at 125. Right before the latest recession, this index peaked at a about 144, so I figure our blind positivity isn’t too high for the overall market just yet.
2) We’re Young and Plan to Ride Out the Market
In all honesty, I would love to see the market take a dive right now (sorry Mom and Dad).
Because we’re young and have plenty of time to wait for the market to recover. In the meantime, we’d get to buy a ton of stocks at a discount! That’s what I did in 2009-2012. While everyone else was pulling their money out of the market, I was shoveling as much in as possible. That’s actually how we landed $100k in the market – we contributed about $30,000 of our own money and watched the market give us the rest! I’d love to do this again.
3) We’re Diversified in the Market
For those of you that have $100,000 sitting in Apple stock, you’re basically gambling. Tim Cook could kick the bucket tomorrow and the future of Apple might be lost, which could cut your $100k in half overnight – or worse, make your money disappear entirely (ever hear of Enron?). It’s a high-risk game that you could win…or severely lose.
I’m not a gambling man. I don’t take those risks. For this reason, I place all of my dollars into Index Funds and well-established mutual funds. It’s done me well as I’ve earned an average of 12%+ since I started investing nearly a decade ago. And, if the market took a dive, there’s no way I’d lose all my money – it’s diversified across too many funds and too many sectors for this to even be possible. Instead of losing it all like those of Enron in years past, I’d maybe tick down 30%. It wouldn’t be fun, but it’s way better than plummeting down to nothing!
If you’re an investor or just getting started, I’d first take a look at Vangaurd if I were you. The options are endless and the fees are cheap.
If, however, all the options and complex analysis freaks you out a little (I totally understand!), try a simpler approach with Wealthsimple. Sign up online, contribute $100 or more and they’ll give you $50 totally free! Plus, they’ll send you a few questions to get a sense of your risk tolerance, and then provide you one of three simple options to choose from! It’s a great set-up for those that know nothing about investing or just don’t want to think too hard about their investments.
4) No One Can Predict the Rise and Fall of the Market
You want to know one of the main reasons I’m continuing to invest? Because even with all the jibber-jabber on the dozens of different financial channels, nobody has a flippin’ clue when the market is going to turn – either for the good or for the worse. Ever hear of the study where monkeys threw darts at lists of stocks and outperform high-profile stock brokers? It’s happened on numerous occasions, and it just goes to show you that even the smartest broker can’t get you in and out of the market perfectly. It’s just not going to happen.
- Robert Kiyosaki told us the stock market was going to crash in 2016 – we’re still waiting…
- My finance professor predicted the tech bubble of 2000…in 1995 (oops!)
- Every financial genius out there told us the stock market was inflated in 2016…and the market has nearly doubled since then. Good thing we didn’t get out!
On average, the stock market goes up, so get in and stay in. It’s as simple as that.
5) The Tax Reform Will Continue to Drive Growth
Notice that your paycheck is a bit fatter this year? That’s because of the Tax Reform in 2018. You’re paying fewer tax dollars to the government and it’s the same story for the corporation you work for. Millions of dollars are flooding the market that haven’t been there before. This is going to drive personal spend up, which also means that business revenue will rise…which of course means that their value should rise as well, thereby lifting the stock market.
But you know what? I’m just a floating head jibber-jabbering right now…;). Skip this point, move onto the next one, and look up some monkey meme’s while you’re at it (oh, and share them in the comments if you find some good ones!!).
6) It’s One of the Best Investments in History
Gold, silver, real estate….nope. None of these hold a candle to investing in the stock market.
- Real estate has historically grown 3% a year
- Over the last 100 years, gold has risen 1.4%
- Silver has grown by 0.0087% over the past 100 years
- The S&P 500, since its inception in 1928, has risen by an average of 9.8% each year
And that’s exactly why so many of us flood to the stock market. It has performed in the past, and it continues to perform again and again, year in and year out.
7) It’s Just One of Many Baskets
Investing in the stock market is a great thing to do, but it shouldn’t be the only thing you do.
Liz and I have invested in our careers (via college degrees and additional certifications), we own our primary house outright, and we own rental properties (again, that we paid for with cash). If the stock market tanked, we’d still have plenty of opportunity in our work to earn money, and our real estate investments would continue to cash flow, so it really wouldn’t be that big of a deal.
We’d continue to put money into the stock market, and we might even smile a little because at the current stock market dip, we’d effectively be buying up mutual funds and index funds at a discount! 🙂
8) Without Investing, We’d Never Retire
Let’s say you’re 30 years old. The stock market freaks you out a little, so you decide that you’re going to invest your money with the bank in one of their CDs (certificate of deposit) instead. You find the best rate out there and lock yourself in at 3.25%.
- You invest $10,000 a year
- You plan to invest until you’re 70 years old
How much do you think you’ll have by the time you reach retirement?
At first glance, that doesn’t sound too bad…until you realize that a brand new car will cost $100,000 at that point. Why? Because of that pesky silent killer called inflation. You see, every year, the cost of houses, food, clothes, services, etc. goes up. It’s a small amount so we don’t notice it much from year to year, but on average costs go up 3%. So, your 3.25% interest that you’re earning at the bank, that’s basically just keeping you at par. You didn’t lose money, you didn’t earn money – your purchasing power stayed the same.
What If, Instead, You Invested in the Stock Market?
Instead of earning that 3.25% year in and year out, what if you averaged 9.8% in the stock market (this is of course no guarantee, but there’s plenty of history that says this is certainly possible!)??
- All other numbers stay the same – you invest $10,000 a year, and
- You invest for 40 years until you hit the ripe old age of 70
At retirement, your investments will be worth…….
You’re suddenly not worried about a $100,000 car are you?
And THAT’S the major difference. That’s why Liz and I are continuing to invest in 2018, 2019, and all the years after that — so we can retire well and not worry about money ever again.
Are You Continuing to Invest in 2018 and Beyond?
Are you continuing to invest in the stock market even though the Dow is peaking at $25,000? Do you have the same mentality that Liz and I do?
- Consumers aren’t scarily over-confident about the market, so it should be fine for a while
- We plan to ride out the market long-term, so we may as well stay in it
- We’re diversified in the market with index funds and mutual funds
- No one has consistently predicted the market, so what makes me so special? It’s best to not outsmart myself.
- The tax reform is continuing to spur growth
- The stock market has performed again and again, so there’s no reason to believe that it won’t continue
- We’ve effectively diversified our investments outside stock market as well
- Invest in the stock market….or earn far less somewhere else….
All signs point to continuing to invest for us. What about you? Will you continue to invest in the stock market through 2018?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.