At first glance, the rabid stock market selling that has dominated ASX news over Friday and today's session doesn't seem like good news for Australian investors. Nor anyone with a superannuation account. Falling stock markets usually means falling wealth. And that is never an enjoyable experience.
To be fair, the dramatic sell-offs we have seen over both Friday and today's trading sessions have been quite sizeable. Since Thursday afternoon's market close, the S&P/ASX 200 Index (ASX: XJO) has fallen by a painful 5.5%. That consists of the 2.1% drop the ASX 200 copped on Friday, as well as the horrid 3.5% it has lost today (at the time of writing anyway).
Sure, looking at your brokerage accounts and seeing a sea of red might not seem like a positive experience. After all, the whole point of putting money into the stock market rather than into a bank account is to build wealth in the fastest way possible. But that's only if you look at it through one side of a lens.
What if I told you that the huge sell-off we are currently seeing on the Australian market is a golden opportunity? One that is particularly lucrative for younger investors.
Why today's stock market is a golden opportunity to buy
There are two historical trends that indicate to us that investing in the share market is a good idea for anyone who wishes to build long-term wealth.
The first is that stocks, both international and ASX, tend to outperform all other asset classes (cash, property, bonds, gold, you name it) over long periods of time. This is a trend that our chief investment officer, Scott Phillips, dives into every year.
The second is that the stock market tends to go up far more often than it goes down. Whilst it's the down days that tend to get the most media attention, the reality is that the markets rise most of the time.
That's why both the ASX 200 and the American S&P 500 Index (SP: .INX) have never failed, in all of recorded history, to exceed a previous all-time high. In fact, both of these indexes saw a new record in just the past month alone.
Of course, just because something has performed well in the past doesn't guarantee it will continue to do so in the future. But I think betting against a trend that has only gone one way for more than any of our lifetimes is a rather foolish errand (and not the good kind of Foolish).
Foolish takeaway
If we take all of these points to their logical conclusion, it makes sense to invest as much money as we can into the stock market as often as we can. When the share market falls dramatically, as it has in recent days, all it means is that we can buy even more shares for the same amount of cash.
If shares continue to appreciate in value and build wealth, anyone who picks up those shares at cheap prices will come out ahead. Especially against those who got spooked and sold out when the markets turned red.
Shares tend to compound in value over time, meaning that the more time we give to this process, the higher the returns will be. So today's market is a gift to anyone who, as the legendary Warren Buffett might say, likes buying quality merchandise when it is marked down and on sale. And that gives younger investors the most to gain from this process.
