The Deceit of Cultural Narratives
A friend recently reached out to ask a few financial questions. During the conversation, he made a comment that stopped me in my tracks: "It's surprising that you're such a big advocate for the stock market when it's doing so poorly." I didn't quite understand where he was going with this thought, so I asked him to explain. He shared that the stock market has been beaten up badly, and it's "only getting worse." He went on to draw into question the practicality of investing in the stock market, and stressed the notion of "too much risk."
While it's true the stock market dropped by approximately 20% in 2022 (which I would indeed classify as "beaten up"), he doesn't see the whole picture. It's a truth, but a half-truth. Er, a quarter-truth. Please allow me to fill in a few gaps:
In the first 11 months of 2023, the stock market (S&P 500) is up approximately 19% (not including dividends).
Over the past five years (including the 20% fall in 2022 and a 32% tanking in early 2020), the stock market has increased by more than 11% per year.
The stock market only needs to increase by 4.3% from today's value to hit an all-time 153-year high.
Over those 153 years, the market has increased by an average of just over 9% (including the reinvestment of dividends). The average is 11% per year for the past 40 years.
If all that isn't crazy enough, here's one more fun fact that may blow your mind. The WORST (yes, worst!) the stock market has done over a 30-year period is go up by 4.4x. Crazy, eh? The worst possible outcome during any 30-year window in US stock market history is quadrupling your money (plus a little more). Considering you can't even legally touch your retirement funds (without penalties/taxes) until age 59.5, if you're under the age of 30, you have at least 30 years before you'll even think about withdrawing those funds anyway. Context matters.
Ok, investment rant over. Here's the bigger takeaway. My friend is the victim of what many of us fall prey to. We're sucked into cultural narratives that feed us enough half-truths until it becomes THE truth. Investing is a big one, but far from the only one. Here are a few others that I frequently see:
It's impossible to attend college without student loans.
Buying a house is always a smart financial decision.
You need to use a credit card.
Groceries must cost your family $1,000+ per month.
We need to seek out the job with the highest possible income.
Having a car payment is inevitable.
____________ (insert yours here).
All of these are cultural narratives woven into the fabric of our society. Also, they are deceitful at best, and destructive at worst. If we just believe the narrative at face value, we concede it is our reality. Then, we casually float downstream toward an impaired reality.
Always question the narrative. Challenge the narrative. Seek the truth.