This is an excerpt from an article written by David Booth, founder of Dimensional Fund Advisors. So well said!

Imagine it’s 25 years ago, 1997:

  • J.K. Rowling just published the first Harry Potter book.
  • General Motors is releasing the EV1, an electric car with a range of 60 miles.
  • The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.

A stranger offers to tell you what’s going to happen over the course of the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events were going to happen? And could you stay invested?

  • Asian contagion
  • Russian default
  • Tech collapse
  • 9/11
  • Stocks’ “lost decade”
  • Great Recession
  • Global pandemic
  • Second Russian default

With everything I just mentioned, what would you have done? Gotten into the market? Gotten out? Increased your equity holdings? Decreased them?

Well, let’s look at what happened.

From January of 1997 to December of 2021, the US stock market returned, on average, 9.8% a year.1

A dollar invested at the beginning of the period would be worth about $10.25 at the end of the period.2

These returns are very much in line with what returns have been over the history of the stock market. How can that be? The market is doing its job. It’s science.

FOOTNOTES

1In US dollars. S&P 500 Index annual returns 1997–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

2Data presented for the growth of $1 are hypothetical and assume reinvestment of income and no transaction costs or taxes. This value is for educational purposes only and is not indicative of any investment.

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