As children we’re taught that the shortest distance between two points is a straight line.
Many expect investing to be the same, with high and consistent returns bringing you from point A (starting out) to point B (wealth).
But markets don’t operate in the same realm as the physical world. There is no straight line when it comes to risky investments. Instead, the road to wealth is a long and winding one – two steps forward, one step back – repeated indefinitely.
Let’s go back 20 years to see this road from the perspective of an investor…
It’s July 2001 and you invest all of your hard-earned savings in the S&P 500 ETF ($SPY), $10,000, hoping to earn the long-term rate of return on stocks (roughly 10% per year).
You check back at the end of August and things aren’t going so well. The U.S. economy is mired in a recession and you’re already down 6.6%, bringing your $10,000 to $9,338.

A few weeks later, the largest ever terrorist attack on American soil occurs (9/11), and the stock market closes for a week.
When it reopens on September 17, you once again take a look at your account. It is now down 14.7% in just over 2 months, bringing your balance down to $8,532.

It would rebound from there, and by year-end you take a look again to find your account back up to $9,418, 5.8% below where you started.

Unfortunately, that rebound would prove to be short-lived, as stocks took another turn lower in 2002. They would finally bottom on October 9, 2002, but not before pushing your initial $10,000 down to $6,505, a 35% decline in 15 months.

But you held on, and two years later (November 2004), you were finally back to even. Your return at that point was 0% after 40 months of agony, but it felt good to be back in the green.

With some bumps along the way, the next few years would be prove to be good ones, and by October 2007, your account had moved up to $14,240. This was a 42% increase from where you started, or 5.8% annualized. Not the 10% you were hoping for, but much better than where things stood five years earlier (-29% annualized).

The good times, however, did not last. The U.S. would move back into recession in early 2008 and by October the financial crisis was in full effect, pushing your account back below $10,000 once again.

When the bear market finally ended in March 2009, it proved to be the worst since the Great Depression, with the S&P 500 declining over 57%. As a result, your account value fell below its low in October 2002, now 36% lower than where you started in 2001. All hope of ever getting back to even seemed lost, let alone earning a decent return on your money.

But just six short months later, everything had changed. The U.S. recession had ended and stocks came roaring back. Your $10,000 was there again. A 0% return over 8+ years, but considering where you were back in March, this seemed like a miracle.

A few years later, you reached the 10-year mark, and things were looking even better. Your account had moved up to $13,010, 30% above where you started. The 2.7% annualized return at that point was much lower than what you would have earned in bonds, but at least it was positive.

Right on cue, though, your mettle would be tested yet again. The European debt crisis was rearing its ugly head and fears of a “double-dip” recession gained traction. The resulting decline pushed stocks down over 20% and your balance headed back towards $10,000 once more.

But the fears soon abated and the U.S. expansion continued. Less than a year later (August 2012) you were back at new highs, finally surpassing the previous high from October 2007. You were tempted to sell and “quit while you were ahead,” but you resisted the urge and stuck to your long-term plan.

And it’s a good thing you did, because one of the strongest bull markets in history would follow, bringing your account balance up to $33,400 by September 2018, a respectable 234% gain from your initial investment (7.3% annualized).

But then, without any warning, another 20% decline blew in. The stated impetus: fears over rising rates, tightening Fed policy, and a trade war with China.

But just as had occurred in 2011, the concerns didn’t last, and the market moved right back to new all-time highs. From there, the gains would continue. By February of 2020 your account was up to $39,630, a 296% gain from where you started (7.7% annualized). The U.S. expansion was now the longest in history and everything seemed to be pointing to another strong year.

Then, out of nowhere, the global pandemic hit, leading to the fastest bear market in history. Fears of a second Great Depression were running wild. Your account was now down to $26,260, giving back 3 years’ worth of gains in a month. There was every reason in the world to sell, but somehow you held on.

And it’s a good thing you did, because without any clear signal (see rule # 17: “no bell was rung”), stocks would reverse course in dramatic fashion from there. The fastest bear market in history became the shortest and the “second Great Depression” fears never materialized as the downturn hit a low soon after it began (shortest recession in history at 2 months).
By August 2020, your account was back at new highs, in a V-shaped recovery for the ages.

You held on from there and hit the 20-year mark in July 2021, with your account more than 5x higher than where it stood when you first started. It wasn’t a straight line, far from it, but the 8.6% annualized return you earned was worth the wait.

Still want a straight line? You’re not alone. And one does exist in the form of a risk-free savings account. The problem? With a current yield of 0.06% (national average on savings accounts), this is far below the rate of inflation (loss of purchasing power), and it would take 1,200 years for you to double your money. A straight line, yes, but certainly not a path to real wealth.
To be sure, the last 20 years were difficult ones for equity investors, particularly the first 10. But every 20-year period has its ups and downs…

The names and dates may change, but the story remains the same: two steps forward, one step back. That is the essence of the long and winding road to wealth.
For every investor, that road looks different. There isn’t a single path to follow because we all have unique temperaments and circumstances that invariably change over time. We also have different starting points, further inserting randomness into an already unpredictable endeavor. Some may start at the bottom of a cycle (March 2009) while others may start at the top (March 2000). Some start investing early in their careers, while others start later in life. Some can take a high degree of risk, while others can handle only so much.
All these factors and more ensure that no two paths are alike. And that’s okay, as there isn’t one “right way” to invest. There’s only the right way for you.
Find the road you can stay on the longest and it will make all the difference in the world, allowing the magic of compounding to work wonders. Embrace the twists and turns along the way, without which there would be no reward.
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