Bad Market Returns? Ain’t No Problem Here.

The best thing about starting to invest in your 20s has to be the growth potential. Despite getting mediocre wages compared to our skill sets (like me making $30k a year with a college degree…) we’re the ones set to make the most money out of any other adult demographic. And we’ve got it easy too, if we park our money in investments like index funds that track the whole stock market. Since the whole stock market grows at 10% on average every year, we’ll see that exact same return on our investments. W00T, no need for fretting over specific industries/company outlooks/speculative coins/Mercury retrogrades! What other set-it-and-forget-it plans will net you double your money in a decade??

But before you create your Vanguard account and transfer your savings, you should consider this: we could be wrong. That ten percent average I quoted up there is based on the history of the stock market; if you don’t believe history can be used to make an educated guess, this investing stuff could blow up in your face.

For critics of the FIRE movement, this is overwhelmingly their most popular argument. We do hinge practically all our calculations – and paths to wealth – by the amount of money we get back from investing. Worse yet, the news is warning us we’ll have many bad market years ahead of us. What’s going to happen to our hopes of financial freedom if investing doesn’t pan out so well?

You should consider this possibility, seriously. In a capitalist society like ours, money is your most valuable resource. Losing it would, at best, leave you with nothing to show for your hard work.

But for me? I KNOW it’s a non-issue.

Saying “you don’t need to worry about bad market returns” smacks of blind naïveté. There are definitely going to be some years where the stock market either gives you flat (0%) returns or outright negative returns. They’re going to come, just as they’ve always come throughout stock market history. But if you’re young like me, they aren’t going to impede your ability to build significant wealth.

This is still true even if we experience bad returns over many years of time. In this context, I can tell you for a fact that “bad” only means returns in the 1-5% range, instead of the 10% we’re used to.

As for multi-years returning zero percent? Or negative percentages?

Guess what: survey says it ain’t gonna happen.

Investing 101, For Context

To understand why I’m so confident in my answer, it’s good to understand the investing basics. (Here’s a glossary of terms for your reference.) Seeing investment growth, or returns, means you have more money than you did in the past. This is done in one of two ways: you are directly paid money in the form of a dividend (aka yield) or your shares of an index fund (or whatever you put your money into) are now worth more than what you paid. If a share you bought for $10 is now worth $11, that’s growth.

Just as there are different ways to receive growth, there are also different ways to measure it. My Vanguard index funds, for example, show I’ve gotten about a 16% return since I opened the account. That means every ten dollars I had in there is now worth $11.60.

If I chose to measure my return over the last 12 months, that return is over 30% (aka, every $10 I had has grown to $13). I didn’t even add more than $3k to this account until August, yet I saw it grow to over $30,000 more than it was at this time last year.

These gains aren’t from GameStop speculation; it’s all from trusting the overall stock market would grow.

The Microscopic Potential of Multi-Year Flat/Negative Returns

That’s awesome to see, but this is also enhancing the market returns I’ve had after first beginning investing half a decade ago. There are a ton of news sites out there publishing articles warning professionals much smarter than you are predicting zero returns over the next decade… or, worst, negative returns. Who’d want to invest with headlines like “Massive Bank Sees Negative 10-Year Stock Returns” and “Stock Market Crash: Experts Warn“? You’d be running for the hills if you took them at face value. You’d be investing in a Ouija board to contact your Depression-era ancestors asking for tips on stowing cash in your bed frame or hiding your assets on the farm*.

I’ve got three main reasons for why I don’t think we’ll see even flat returns for a multi-year period. The first reason is because the federal government will implode before it willingly lets that happen. The United States has proven they will prioritize market growth. This prioritization goes at least as far back as the Reagan administration forty years ago. It’s because of this that I feel secure (while also feeling upset and pissed off about this messed-up precedence) in planning for some kind of positive investment growth over a multi-year period. So far our lawmakers have proven resistant to any impactful measures to limit growth, even if it comes at the cost of something so threatening as climate disaster and widening the wealth gaps.

The Rest Makes This Clearer

It’s not just the US government behind this; it’s also the corporate lobbyists and other minions blindly focused on profit, which is my second big reason. I am fully convinced executives are the worst at money management, being so terrified to report flat or negative changes to revenue that meddling with the democratic process and making planet Earth less habitable… is preferable. Infuriatingly, there’s not much recourse to keep them from putting profits over people; the normal course of action is via government intervention, and we’ve already established that ain’t gonna happen.

Besides government policy and cutthroat profit-chasing, there’s one other reason I have for believing flat/negative market returns just will not be a thing for long periods of time. This reason is a hopeful one: because human nature is all about advancement and striving forward. Investments should be built on innovation that improves the quality of life worldwide, which should be the main driver for growth anyway. Humans have been innovating to this end since the beginning of time – why else would we build tools like writing systems and language, if not to streamline collaboration?

Whatever happens in the future, there will always be people looking to improve. If everyone finally agrees frugality and eco-conscious initiatives are the way to go, we’d still see returns on index fund investments.

What About the History?

My optimistic hippie outlook is pretty spot-on from a historical perspective too. Historically speaking, multi-year stagnation/negative returns are huge anomalies in the United States. Since 1915, there have been 4 periods when the stock market reported negative returns for 3 years or more. One of those times, the Great Depression, lasted the longest with negative returns for 4 consecutive years (1929-1932). The other three were:

• The World War 2 slump, 1939-1941
• The “Post War Blues,” 1946-1948
• The dotcom bust, 2000-2002

None of these multi-year slumps came without deep-seated cause on an international stage. The 1939 start dovetails with the rise of fascism and the Axis Powers. The wartime years showed positive returns because the markets went all-in on making products for the war effort, which obviously went poof once Germany and Japan surrendered. The dotcom revolution, of course, concerns the Internet; the Web has completely revolutionized modern society with far-reaching effects, which they knew in the 90s, but too much frenzied speculation is what led to its downfall. Economists have learned their lessons well from these eras; they’re not keen on repeating them.

Interestingly, several significant worldwide events did not cause a multi-year stock market slump:

• Coronavirus (2019, 2020, AND 2021 had high returns YoY)
• The 2008 recession (only one year had negative returns)
• Any war, scandal, military occupation, political dispute, or natural disaster in recent history (speaks for itself)

If none of these could hack the stock market returns, it’s going to take something much, much bigger and highly, highly unlikely.

Pre-1915 data still upholds my confidence.

If you wanted to go back further in American history, the longest economic depression took place amidst the Panic of 1819. This period marked the first major depression in American history, which resulted in several recessions throughout the 19^th century (and was only beaten by the Great Depression in severity). I only bring that up to show that, no matter what era you’re looking at, more than two years of flat/negative returns require abject failure on multiple levels of government and commerce.

With all of that said I’m bolding AND italicizing this next sentence. If there are truly many years of low returns on the horizon, they will not go below zero percent. The most likely bad scenario would be seeing sustained returns of 2-6%.

Which begs the next question of: if the unlikely does happen, what’ll it do to my investments? Would my finances still make it out okay with an alien invasion/supervillain takeover?

Let’s Experiment

How ‘bout we find out by using my own cash as a case study! FOR SCIENCE!

These are pretty straightforward as they only require some calculating on my part. The tables I use to demonstrate my future millionaire status are based on historical returns, because the past is our only clue to determining the future. Since I don’t believe in multi-year periods or zero-or-lower rates, would I be prepared if the returns are positive, but sub-par?

For the purposes of this experiment we’re going to assume I never see changes to my cost of living or take-home pay; I neither increase or decrease the amount of money I spend, and I neither take a pay cut nor get a raise/promotion. I would still see my net worth go up, but my growth would, once again, be mostly because of my savings. On the path to wealth it’s your contributions that make up much of the growth until you hit the first $100,000 in savings.

That changes after you pass that BallerFI milestone, as it did for me. I first reached $100k in October 2019; two years later and I’m now at $280k (what!) That growth was driven much more by investment growth than it was my contributions, as I note for 2020.

If that changes, my current calculations – which use the historical 10% return – are no longer relevant. I would not reach a million dollars by my mid-30s.

But as we see below, I wouldn’t be far off.

Yes, I’d still make out great in the event of bad market returns.

My post-tax income is roughly $75,000. If I spend $35,000 a year, that leaves me with $40,000 more to invest with every 12 months. Compound interest still works its magic here, too.

If the market delivers just 2% on average going forward, I’d be a millionaire when I’m 41.

Age	Amount (adding $40k + a 2% return)
27	$280,000
28	$325,600
29	$372,112
30	$419,554
31	$467,945
32	$517,304
33	$567,650
34	$619,003
35	$671,383
36	$724,811
37	$779,307
38	$834,893
39	$891,591
40	$949,423
41	$1,008,412
42	$1,068,580
43	$1,129,951

4% returns? When I’m 39.

Age	Amount (adding $40k + a 4% return)
27	$280,000
28	$331,200
29	$384,448
30	$439,826
31	$497,419
32	$557,316
33	$619,608
34	$684,393
35	$751,768
36	$821,839
37	$894,713
38	$970,501
39	$1,049,321
40	$1,131,294
41	$1,216,546
42	$1,305,208
43	$1,397,416

7% (which the conservative FIRE folks use as their baseline)? When I’m 37 (ehhh, more like 36-and-a-half).

Age	Amount (adding $40k + a 4% return)
27	$280,000
28	$339,600
29	$403,372
30	$471,608
31	$544,621
32	$622,744
33	$706,336
34	$795,780
35	$891,484
36	$993,888
37	$1,103,460
38	$1,220,703
39	$1,346,152
40	$1,480,382
41	$1,624,009
42	$1,777,690
43	$1,942,128

The historical average of 10%? When I’m 35. You get the idea.

And if it turns out to be a horrible return at 1% per year? Earning maybe double the current bank account interest rates? I’d still hit millionaire status at 43 years old.

Age	Amount (adding $40k + a 1% return)
27	$280,000
28	$322,800
29	$366,028
30	$409,688
31	$453,785
32	$498,323
33	$543,306
34	$588,739
35	$634,627
36	$680,973
37	$727,783
38	$775,061
39	$822,811
40	$871,039
41	$919,750
42	$968,947
43	$1,018,637

That’s still obnoxiously earlier than most folks who have the option to retire. And it only would take so long because I like the status of a million dollars. If I decided to live on much less, like half a milly, that would dramatically cut my FI number (and age upon achieving it) way down. In the event of subpar returns over multiple years, doing so should be more accessible and easier to do.

Conclusion

This was a very long-winded way to tell you to start investing ASAP. Market returns are going to fluctuate, but are not going to hurt you as a long-term investor.

This is exactly why I’m about starting to invest ASAP. I started investing when I was making $41k a year, and initially learned about investing when I was making $15 an hour. If I had waited until I was making “good money” (which didn’t happen until 2019) I’d have missed out on several thousands of dollars in gains.

If I had been discouraged by the flat returns in 2018, I wouldn’t have seen my net worth go up by six figures this year.

If I had never started at all because I got spooked by the chatter? Well, I’d be a lot less financially stable, that’s a fact.

Something important you learn about investing is to never make this be about your emotions. You might be nervous about investing; you might be scared. These emotions are valid, but they aren’t going to help you. Many of those emotions-based articles on ***IMPENDING STOCK MARKET DOOM*** aren’t going to help you either; they care more about driving traffic and engagement than they are with actually benefitting you.

There is always going to be negative chatter of the overall market because it’s this scary, colossal thing that, for most (including investors) is hard to understand.

Don’t be afraid of what you don’t understand.

At least, not to the extent it prevents you from participating. You can be nervous and scared while still trusting the numbers and investing your money.

It would have always been better to invest earlier than you did. Eventually, today is going to be that “earlier”. Don’t let worries over subpar market returns fool you: investing now is your best path to the life you’ve always dreamed of.

*Darcy story time! One of my great-grandfathers (my dad’s dad’s dad) was an Italian immigrant with a postage stamp-sized farm in Nowhere, Illinois. During the Prohibition era in the 1920s he happened to have a couple barrels of (probably, definitely) homemade wine. He was so panicked the cops would arrive and arrest him for them that he buried them somewhere on that farm, likely in between the little white barn and even littler house my Poppa grew up in. No one’s tried to dig it up since, so I’ve always wondered if there’s some delicious Piedmont-like vino aged underground for a century out there. Assuming the barrels haven’t rotted by some miracle, that is.

Cover image credit: Daniel Páscoa via Unsplash