I had some great responses to my article about Vanguard Index Chart Day last week.
Most people were thankful for the 'picture tells 1,000 words' impact.
Many shared it with friends and family.
But there was one small, but significant, negative trend in some of the feedback.
It was from those who said 'But what if you'd bought at the peaks? The results wouldn't have been so good!'
And they're dead right.
From those points, the returns wouldn't have been great.
But the key question I'd ask, nicely, is 'so what?'.
And I don't mean that dismissively.
I literally mean 'What else would you do?'.
And from a couple of different angles.
See, that pinpoint-accurate assessment of the less-ideal times to invest is only available in hindsight.
So there's not much you can do about it at the time.
Second, you'd have to work out what to invest in, instead. And again, without perfect foresight, it would have been harder to pick at the time.
Lastly, it ignores the other 29.5-odd years when investing in shares would have given you a result somewhere between good and spectacularly good.
It is, in short, the peaks are the exception that proves the rule.
As I've written before, you'd have to be the unluckiest bastard in the world to have never invested a single cent beforehand, then invested your entire life's worth in the market at precisely the peak, and then never invest another dollar again.
And if you were? Well, again, you'd be the exception that proved the rule. And you'd still have made money.
Not a lot, I grant you, but if that's the downside…
And, you know, that type of negative thinking has always puzzled me.
I give you 30 years of data (well, Vanguard does, but you know what I mean)…
I tell you that the returns of the last 30 years are pretty close to the average returns for the 90 years before that…
I show you the sheer dollar impact of long-term compounding in the share market…
…And someone points out that there were a couple of times over that stretch when investing results wouldn't have been quite so good?
Frankly, it's like saying 'well, Bradman's not that good… he got a few ducks'.
No, Bradman didn't score a century every time he went out to bat.
But his record was extraordinary.
Speaking of snatching defeat from the jaws of victory, the other criticism you'll hear, when discussing long term investing is 'well, what about Japan'.
(If you've come in late, Japan's stock market got stupidly expensive in the late 80s and has never yet returned to those levels.)
To which I reply: Yeah, but what about the US, Australia, New Zealand, The UK etc etc etc.
Their scepticism does serve a useful purpose, though.
They're right that there are no guarantees in investing. Some companies, some countries and some time periods can be disappointing… or worse.
That's 100% true. And you should know it.
But I return to my question: Without the benefit of foresight, what else do you do?
Me? I'm going to take the overwhelmingly good odds.
If I buy shares at good prices…
If I buy regularly (called dollar cost averaging)…
If I create a diversified portfolio (by industry, geography, currency)…
… then history says I am overwhelmingly likely to have done well in the past.
Well, I could stay in cash, I guess.
But with inflation usually surpassing bank interest, I'm almost guaranteed to go backwards, when it comes to purchasing power.
To be sure, the money is government-guaranteed. So there's that.
But if I'm trying to create, build and sustain a nest egg?
I'm going to buy shares.
Not because the future is guaranteed to look like the past.
But because 120 years of history is on my side, and my guess is that the forces at play won't change meaningfully – and permanently – any time soon.
No, I don't know what comes next.
The market could boom. Or crash.
Both will probably happen, a few times each, over the coming decades. It happened in the past, too.
But here's why I'm investing: I think the group of companies listed on the Australian and world stock markets will continue to thrive – finding new ways to grow their profits, despite the occasional failure.
And if that's true, and if I pay a decent price for those shares, then the value should increase, over time, as profits grow.
So I – and you – have a choice.
We can look, with perfect hindsight, at those couple of points in the last 30 years when investing wouldn't have delivered fantastic returns.
Or we can look at the rest of the three decade period (and the 90-odd years before that), and the astounding gains that investing in a diversified portfolio of listed companies has delivered.
I'm taking the latter path. Over the long term, I think I'll be handsomely rewarded. I expect — no guarantees –that you will, too.