What I learned in 30 years of investment


My 30-year-old Morningstar birthday has arrived. This has prompted reflection. If I had a time machine, what investment advice could I give to my youngest age?

<p class = "canvas-atom-canvas-text Mo (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Apple Purchase (n / a)AAPL) shares in 1996 and mortgage bonds secured by pledges in 2008 would have been useful advice. I will offer more realistic advice: live during a bull market. "Data-reactid =" 23 "> The Apple Stock Purchase (AAPL) in 1996 and the reduction of mortgage bonds guaranteed in 2008 would have been useful tips.It is more realistic: live during a bull market.

Bonds sometimes have high earnings after inflation. Even, on occasion, makes money. But among the main financial assets, only equities have the potential to offer a performance that does not only preserve and modestly expand wealth. Inventories can create fortunes. Investing in stocks, via a bullish stock market, is an investment experience like no other.

My first mutual fund is a concrete example. In March 1988, I invested $ 1,000 in my first mutual fund. Since then, I have left the fund intact, to accumulate. And accumulate it a. Today, these $ 1,000 are worth $ 14,834. If I had bought a small business index fund, which did not exist at the time, this account would probably be larger.

If equities return 10% a year and inflation is 3%, it's hard to be wrong with equities. High costs, confused jobs, poor selection of managers … errors disappear. To be sure, such decisions matter. Better to get them right and maximize profits. Nevertheless, the crucial decision was to keep stocks. Better to be silent with equity than smart with bonds.

The performance of the stock market continues to surprise me. I have never lost the feeling of my fear of increasing the value of the shares without the participation of their owner. To be paid, you have to work … right? But my first fund paid me well to stay there.

The fund has not yet had the time to create a fortune, but if it continues on the same footing, it will do so.

Here is the analysis. To begin with, this 15-fold gain needs to be adjusted to account for inflation, which has reached 113% since 1988. The fund's real gain has therefore been around 700%. If I had defined a fortune in 1988 as one million dollars, I would have needed to invest 140,000 dollars – a considerable sum for the time. Building a big fortune by making a single investment early in my career was possible, but only starting with a small fortune.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "How to reach 1 million dollars"data-reactid =" 30 ">How to reach 1 million dollars

Assuming that my health is important to me and that I do not need to spend that money, my first investment could last another 20 years, basically.

If this is the case, and the fund functions as it did in the past, this 700% increase after inflation would reach 2,500%. We are talking now. Achieving this hypothetical goal of $ 1 million, as defined in 1988 dollars, would have required an initial expenditure of $ 40,000. Beyond my means at the time, but not an inconceivable sum for someone under 20 years old.

Of course, this exercise requires only one purchase, with no other activity. In real life, stock market mathematics is much easier because people usually invest on a continuous basis. They do it with stocks, so they stay the course for several decades and that stocks perform the same as during my professional career, young workers today will do well.

In 1988, I bought shares because I had landed a position in an investment research company. If this accident had not happened, I would not have bought shares that year, and probably not for many years. The blind squirrel fell on the walnut.

Will the next generation have the same luck? I have assumed that the actual future returns of the shares would look like those of the past. It was what I believed in 1988 and it turned out to be accurate. Will investors new to 2019 find the same problem?

The answers to these questions exceed anyone's salary score. We do not know and can not know if the most judicious investment advice the next generation can ever receive is what I would advise my young man: buy stocks early and buy them often. However, the subject deserves discussion. As I realized by reflecting on my 30-year anniversary at Morningstar, the level of stock market returns dominates all others. As the saying goes, it's the elephant in the room.