What if you don't trust the system enough to invest?
It takes faith to keep doubling your money
Reader Jnsa emailed me, responding to my last week’s post on hope with this quote from prison industrial complex activist and organizer Mariame Kaba:
“When I would feel overwhelmed by what was going on in the world, I would just say to myself: “Hope is a discipline.” It’s less about “how you feel,” and more about the practice of making a decision every day, that you’re still gonna put one foot in front of the other, that you’re still going to get up in the morning. And you’re still going to struggle.”
There’s so much in what Kaba is saying applies to financial freedom1. “Hope is a discipline” is another term for faith.
1. “Hope is a discipline”
In personal finance, there are only two things to think about. First is the “defense:” watching how much money you’re spending. Second is offense: how much money you’re generating. The delta between the two becomes how much you save and can invest to take advantage of the miracle of compound interest.
But what if you don’t trust the system enough to invest? I know many people who won’t invest because of two semi-articulated beliefs. Note how paradoxical they are:
The stock market/economy/capitalism2 is corrupt and only the rich make money, and
The stock market/economy/capitalism is going to crash
The first 5 months of 2022 are a harrowing time. There’s plenty of evidence for people who are money avoidant to not want to invest their money right now. There’s 8.5% inflation and a war in Ukraine. Since the beginning of the year, S&P 500 has dropped almost 20%. The cryptocurrency Luna suddenly went from a $40 billion market to $0. Other cryptocurrencies have taken a big hit too: Bitcoin and ETH, the two major coins, down by half.
But interestingly, this IS the time to invest.
2.“It’s less about how you feel”
The NYTimes this weekend had a good column about investing during a market downturn. It mirrors advice you’d get in any investing book, but you should read it if you’re new to investing or you’re nervous and want to bolster your confidence that what you’re doing is right. In fact you should be investing when the market is going down, because that’s when stocks are cheaper.3
Here’s my perspective: I started investing with $2,000, when I was sixteen. Now it’s over $1 million. I’m not saying that to boast. I’m saying that to convey that when I started, it would inconceivable to have this much now, other than the math told me if I did it, this is what would happen. And it did happen. That’s what the journey is, acorn to oak. And I’m grateful that the younger version of myself did it. And for 20+ years, a younger me made a decision every day, that he was still gonna put one foot in front of the other, and invest in the future.
3. “You’re still going to struggle”
There have been plenty of times to doubt. Since I was 16, I’ve been in the market for 30+ years. I’ve seen:
the 2001 dot com crash, where my portfolio went down 50%
the 2008 financial crisis, where my portfolio went down 60%
the 2008 housing collapse, where I had to foreclose on my house and lost everything I put into it, over $100,000.
the 2020 pandemic downtown, where my portfolio went down 25%
at the time of writing (May 2022), the S&P 500 touching bear market territory, down 18% for the year
So that’s why I say it takes faith. Watching my life savings go down 60% and foreclosing on house, all while not having a job or income, was the most stressful financial period of life. Some of you will remember, in October 2008, experts were actively concerned about the collapse of the entire financial system. I, like so many others, contemplated selling my stocks before everything “goes to zero.” It’s a natural reaction. It’s why they call it a financial “panic.” Somehow, partially out of paralysis, I didn’t sell.
Here’s the thing: the average time a bear market lasts is 289 days. If you have the fortitude not to panic, your portfolio comes back in about ten months. Just remember two things.
You’re in this game for twenty years to forty years, maybe even sixty years.4 Not two. Not four.
Nothing is lost or gained until you actually sell.
Double your money all the time
A little math: The Rule of 72 tells you how long it takes for anything to double, depending on the interest rate. At 7% interest, $100 million to become $200 million in 10 years. In the same amount of time $1 becomes $2. More than tax breaks, special intelligence, or secret handshake deals, the miracle of compound interest is why the rich get richer. They are taking advantage of something available to everyone. But with big numbers, it’s just easier to see.5 Look at Uncle Warren:6
So here’s the crazy secret about doubling: It takes the same amount of time for $200,000 to become $400,000 than it does for $2,000 to become $4,000.
Of course we all want to double to $400,000 from $200,000. But it takes doubling $4,000 out of $2,000 way before that. Having the faith that it will work out in the long run is the key to making that later doubling. If you’re worried about stock market crashes, read this article I give to my FF2 students. Also realize that while the S&P 500 is down 18% right now, down from 4800 to 3900, it was 3200 in February 2020, right before the pandemic. In other words, the market would have to drop an additional 20% for it to be what it was just before the pandemic. If you can see the world with a longer time horizon, you realize your panic doesn’t match the facts.
If you can play the long game, and keep doing it7, you will likely be rewarded decades later. Doubling now $2,000 means a couple decades later, may means you’ll got $200,000 and you’ll be working on doubling that.
become the source that makes
the river flow, and then the sea
beyond. Live in this place
as you were meant to and then,
surprised by your abilities,
become the ancestor of it all,
the quiet, robust and blessed Saint
that your future happiness
will always remember.David Whyte
Time is a long slow game and the rewards are for someone else: the future You. I’m grateful to my past selves, the 16 year old, 26 year old, and 36 year old selves, that saved and invested in an uncertain future, all so that my present self can do what I want. So much of personal finance connects to the Quaker testimony of stewardship: understanding that your future self and future generations have entrusted themselves to you. I hope that my past selves would be happy ancestors, watching me do with the life they gave me, and I hope to do them proud.
At any moment in time, whether you’re in the 1980s or 2020s, there is always reasons to be pessimistic about the world. In your darkest times or in the world’s worst times, spring comes every year. Everywhere you look, young couples are meeting and falling in love. Even old couples are meeting and falling in love. Life generally rewards the optimistic. I can’t tell you whether capitalism will be here in 40 years, or what the stock market will be in 2040. But most people I know saying that the stock market/economy/capitalism is going to collapse are people simply avoiding getting straight with their money.8
It takes perseverance to become the blessed Saint to your future happiness. In short, you gotta have faith.
That’s not to say there’s a moral equivalence between incarceration and personal finance
Depending on how big you want to go
There’s a saying: “the stock market is the only place that when there’s a sale, people run out of the store.” Don’t do that! Nerd dive: look into dollar cost averaging.
See what the market does in 60 years: a 4,275% real return, even after accounting for inflation. In other words, $1 became $42, in inflation-adjusted terms.
Incidentally, the Rule of 72 will tell you how fast inflation will degrade your money as well. In 10 years at 7% inflation, your money will be worth half as much.
The social stats nerd in me finds this chart annoying because the age on the x axis aren’t even, skewing the chart. But still, you get the point.
Which is why you should automate your investing. It’s discipline without the pain or error.