In or Out?

Photo of tandem divers. iStock/Getty Images.

2020 turned out to be a great year for investors in both the stock market and the bond market.

• The S & P 500 returned 18.40% 
• Treasury Bonds returned 8.00%

If you were invested IN the market in 2020, you made money. If you were OUT of the market, you made zip.

If you panicked and sold stock in March, you were OUT of the market and missed the rebound.

In 2020, investing, it turns out, was not the thing to be afraid of.

We had a presidential inauguration last week. Let’s go back in time to another presidential inauguration. 

It is 1933 and Franklin D. Roosevelt is giving his inaugural speech.

In the address he says: “There is nothing to fear but fear itself.”

As the incoming president he was facing a financial crisis – The Depression – and unemployment of 25%.

Unemployment during the COVID pandemic reached a high of 14.4% in April 2020.

Our economy did move into recessionary territory. Some economists hark back to 1933 as a comparison to our economy today.

We are not going to have a depression and the unemployment number has come down, but it will take time for a healthy economic recovery.

I brought up the quote for an entirely different reason though.

I fear it is fear that stops women from investing. Fear keeps women OUT of the market.

Let’s imagine the following scenario:

You and a male colleague are the same age. You have nearly identical educational backgrounds and experience. You joined the firm at the same time.

You are paid equally. You are both promoted at the same time and you receive a yearend bonus, each of you receive the same amount.

So far so good, except for one big difference.

Your colleague uses part of the bonus money and invests in an S&P 500 index fund.

You do not.

He invested in an S & P 500 index fund at the beginning of 2019 and earned over 30% for the year.

He invested the same amount again in the same index fund at the beginning of 2020 and earned 18%, for the year.

I bet he is feeling pretty good right now. Regardless of what he tells his buddies about his investing prowess, he did nothing. And for doing nothing he earned approximately 24% a year for 2 years.

At that rate his investment will double in about 3 years.

He did not pick stocks or bonds. He did not use margin or leverage in his account. He did not use options.

There were no “golf outings” where he received tips from other golfers.

He had no access to information that might have given him an edge.

The only thing he did was put part of his bonus in a passively managed, low fee index fund that tracks the broad stock market.

All else being equal, financially he is now ahead of you. 

We know in the real world, equality rarely happens.

But this is what does happen.

Men accumulate more wealth than women. 

Not because they are smarter. Not because they work harder. Not because they take big risks. Not because they are better at math. 

Men accumulate wealth by investing.

For women, the cost of fear and the cost of not investing is too high. 

It is unlikely we will see double digit returns in the broad stock market year after year. 

But consider this:

If you are invested in a fund, all the investors in the fund receive the same returns over the course of a year.

If  market returns are negative, they are negative for all investors. If  market returns are positive, they are positive for all investors.  

If you invest the same amount as your colleague, in the same fund, your annual returns will be the same.

I remember how excited I was in January 2020. 

The number 2020 seemed auspicious. Good things were going to happen in 2020.

I was determined I could convince two thousand and twenty women investing is nothing to be afraid of.

I know a few of you did start investing.

BRAVO !!!

But I am a long way from 2000+. 

Do you know someone who could benefit from a positive and compelling reason to invest?

Do you know someone who is ready to take a dive into investing ?

Is that someone you ?

“Women will rule the world when they start to invest.”

-Teri Jan 2020

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.