The words we use are important. When you hear the term “stock market,” what immediately comes to mind? Recently, I completed an informal survey asking that very question of various non-financial industry connections and the number one response was “risky.” I think part of the reason people view investing as risky has something to do with the term we use when referring to the assets we are purchasing — stocks.
“Stocks” at an emotional level have no personalities, no balance sheets, and no income statements. “Stocks” are numbers on a screen that seemingly move in incoherent directions.
Businesses, on the other hand, put products on shelves, build the computer/phone/tablet you are reading this article on, provide the electricity for the light bulbs that light the room that you’re sitting in while you stream video content provided by a company via an internet cable provider to a Smart TV while you sit on a sofa you purchased as you drink your morning coffee. When you think about all the daily consumer decisions that you make without any thought whatsoever and realize that each one of those decisions is feeding the income statements and balance sheets of so many companies, these companies begin to feel a little more real.
Thinking of it this way, you can see how intertwined capitalism is with our everyday lives. I don’t see how anyone could really be pessimistic about the long-term future of “the stock market” (aka the Great Companies of America and the World*) in any real sense. If we’re honest with ourselves, if the economy were to start heading south tomorrow, it’s unlikely that your purchasing decisions would change a whole lot.
Retirees are often hesitant to invest too much into stocks. But if people thought about investing more like what is actually occurring when they “buy stocks,” which is purchasing a true ownership interest in the Great Companies of America and the World, I wonder if it would feel a little less nerve-wracking. It might feel more calculated. It might feel like you have a little more principal security.
Because we inherently know that a diversified portfolio of the Great Companies of America and the World are likely to continue doing what they’ve always done. We know that people don’t stop buying diapers, shampoo, groceries, clothes, and other things simply because the stock market isn’t doing well.
And yet, when the stock market isn’t doing well, the perception in the media is that’s exactly what’s going to happen - - the whole thing is going to zero. I’m not saying that recessions aren’t hard on the Great Companies of America and the World; it certainly can be. But thinking about your portfolio as an ownership interest in a collection of the Great Companies of America and the World seems less risky than “investing in the stock market.”
We know that stocks get crushed from time to time. But if you look at the top 20 names in the S&P 500 by market cap, you might feel a bit more connected to the businesses because you are likely a buyer of their products.
- Berkshire Hathaway (owners of Geico, Burlington Northern Santa Fe)
- Johnson & Johnson
- JP Morgan Chase
- Exxon Mobil
- Alphabet (Google)
- UnitedHealth Group
- Bank of America
- Verizon Communications
- Proctor & Gamble (makers of Dawn, Oral B, Pampers, Tide, Gillette, etc…)
- Wells Fargo
And if there is a recession, you’re almost certainly going to continue purchasing their products. Companies like those named above are just a few of the stalwarts that could just as easily been named.
If you think about how invested your monthly checkbook is with many of these companies, you might gather a little more faith in the future of the market itself. We inherently know that the stock market is made up of these great companies, but it is rarely spoken about in this manner.
If thinking about how you spend money doesn’t encourage quite the long-term optimism I’m hoping for, let’s explore other reasons to consider optimism as a realistic outlook.
Additional Reasons for Long-Term Optimism
Further down the line, we have multiple technological advances going on all the time. Check out the couple articles below to get a taste of what might be coming over the next few years.
Despite what we read and think about, in reality, we can’t even fathom what might occur over the next 15 years. There is a strong likelihood that by the time my two sons enter the workforce, they will be doing a job that doesn’t even exist right now. That’s how fast the world is changing. That’s exciting. And this is what has been happening over the past couple of centuries right in front of us. We just hardly notice it because it happens a day at a time.
New Middle-Class Consumers
Then there is the rise of the middle class. Look at what has occurred to the health and wealth of the global population over the last two centuries.
When people enter the middle class, first they become buyers of basic consumer goods, then of luxury goods over time.
Who, exactly, do you think is making the products these new consumers use? The Great Companies of America and the World of course.
One thing that often gets overlooked is that wealthier nations have a vested interest in the advancement of poorer nations because it actually creates additional consumers. This trend of new middle-class consumers can’t possibly be overlooked when investors consider their long-term portfolio.
Things Are Getting Better, Not Worse
Regardless of how you think about the equality issues associated with capitalism, the ability to solve complex problems while improving the lives of millions/billions of people is one of it’s greatest virtues. In other words, in the long run, these types of things work themselves out. Things are actually getting much, much better, whether we realize it or not.
I’d encourage you to check out another Hans Rosling video below - he does a great job illuminating the divide between perception and reality with regard to how we view the world.
Optimism is Realism, But Pessimism Sounds Smarter
For people nearing retirement, they’ve witnessed the DJIA (aka “the stock market”) rise from around 800 to about 25,000 not even including dividends over the past 40 years. So, optimism has been the right frame of mind throughout their working years. Yet, pessimism rules the day because everyone is obsessed with being right about the next correction.
People who are eternal optimists are often viewed as wearing rose-colored glasses and pessimists are viewed as paying attention to their surroundings. Look at the geopolitical environment, look at corporate corruption, look at income inequality, and so on.
We are not ignoring those things just because we choose to maintain a long-term optimistic viewpoint. Rather, we are choosing to look at the big picture. It is important though to note that those things have always existed for the most part. And yet, the Great Companies of America and the World have marched on.
To lose faith in your investments in the Great Companies of America and the World, you’d have to ignore your everyday purchases, the ongoing technological advances and the global increase in wealth. Take time to educate yourself on what is actually going on in the world and you may find that your views on the Great Companies of America and the World (aka the stock market) are changed. Regardless of what is just over the horizon with regard to the markets, there is no doubt that it is a time to be positive and optimistic about the future.
But, you have to think long-term. If you’ve planned appropriately for your retirement income plan, what difference does it make that the market has been down 13 out of the last 15 days? Always remember, the media at large is not as concerned with your success as you are. (Or as I am for that matter.) They just want you to keep watching. They are not compensated by you making smart financial decisions, but by selling more advertising.
My thoughts here are not a way of saying that the market will only keep going up. We know this is not the way that investing works. Investing in the Great Companies of America and the World is about understanding that you must accept the short-term unknowns in search of a long-term probable outcome. We know what has historically happened and that’s all we know.
Next time you find yourself nervous about the stock market, try reframing your thinking. You might even find yourself getting a little bit excited about what the future holds and what possibilities exist. Words matter.
*Credit is attributed to Nick Murray for the phrase “Great Companies of America & the World”
What I’ve Been Reading:
What If You Retire at a Stock Market Peak? (awealthofcommonsense.com) - “Retiring just before a stock market peak could be ruinous to your financial health but it doesn’t have to be. A balanced portfolio was able to hold up using a simple set of assumptions even when our hypothetical investors were extremely unlucky with the timing of their retirement.”
Retirees’ Year-End Tax-Planning Guide (morningstar.com) - “As the year winds down, here are some of the key tax-related jobs to put on your schedule if you’re retired.”
Retirement and Volunteering: What Do I Need to Know? (satisfyingretirement.blogspot.com) - “…what are other some guidelines to consider before you join the ranks of retired volunteers?”
When Is It Time to Find Long-Term Care For A Spouse or Partner? (forbes.com) - “Almost a quarter of family caregivers between the ages of 65 and 74 are caring for a spouse or partner, and this percentage rises to 46% by age 75 and older, according to a 2015 report by the AARP.”
Avoiding Financial Scams and Identity Theft Slams (independenceadvisors.com) - “Nobody is immune from financial scams and identity theft slams. No matter who you are or how well-informed you may be, the bad guys are out there, daily devising new tricks for every fraud we fix.”
Population Without Access to Electricity Falls Below 1 Billion (iea.org) - “In a sign of great progress, over 120 million people worldwide gained access to electricity in 2017. This means that for the first time ever, the total number of people without access fell below 1 billion according to new data from World Energy Outlook 2018.”
The Healthiest People in the World Don’t Go to the Gym (qz.com) - “If you want to be as healthy as possible, there are no treadmills or weight machines required. Don’t just take my word for it—look to the longest-lived people in the world for proof.”
Dark-Roast Coffee May Prevent Alzheimer’s and Parkinson’s (newatlas.com) - “A new study indicates that this may indeed be the case, and that the darker the roast, the better it works.”
How a Low-Carb Diet Might Help You Maintain a Healthy Weight (nytimes.com) - “Adults who cut carbohydrates from their diets and replaced them with fat sharply increased their metabolisms.”
Thanks for reading!
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