Why the biggest risk is not investing at all

Often people will argue that the stock market is too risky to invest in. Especially for those of us that grew up in the shadow of the GFC – putting your money at risk seems too much. Far easier to protect your hard earned when it is safely insured in the bank. 

The problem with that attitude is that you’re missing the bigger picture. Over the long term the stock market has been a fantastic wealth creator. By missing out on this opportunity, we are setting ourselves back later in life. Forcing ourselves to delay retiring and to keep working. Forcing ourselves to take a job for the paycheck. Most of all, forcing ourselves to work for our money rather than have our money work for us. 

Here at Equity Mates, we’d rather own shares in companies that go out and hire the smartest people and invest the greatest products all to return more profits to shareholders. 

Between 1926 and 2018:

  • T-Bills (short term US government bonds) averaged 3.3% p.a.
  • Long-term US government bonds averaged 5.5% p.a.
  • Large cap US stocks averaged 10% p.a. 

Over a few years the difference between 5.5% and 10% may not make a big difference. Give it enough time, however, and the power of compounding starts to take hold.

Let’s say you started with $1,000 and earned a consistent rate of return.

After 10 years:

T-Bills
(3.3% p.a.)
US Gov’t Bonds
(5.5% p.a.)
US Large Stocks
(10% p.a.)
Year 10$1,383.58$1,708.14$2,593.745

Stocks have earned 87% more than T-Bills and 52% more than long-term US Government bonds.

After 20 years:

T-Bills
(3.3% p.a.)
US Gov’t Bonds
(5.5% p.a.)
US Large Stocks
(10% p.a.)
Year 20$1,914.28$2,917.76$6,727.50

Stocks have earned 251% more than T-Bills and 131% more than long-term US Government bonds.

After 40 years:

T-Bills
(3.3% p.a.)
US Gov’t Bonds
(5.5% p.a.)
US Large Stocks
(10% p.a.)
Year 40$3,664.48$8,513.31$45,259.26

Stocks have earned 1,135% more than T-Bills and 432% more than long-term US Government bonds.

After 60 years:

T-Bills
(3.3% p.a.)
US Gov’t Bonds
(5.5% p.a.)
US Large Stocks
(10% p.a.)
Year 60$7,014.86$24,839.77$304,481.64

Stocks have earned 4,241% more than T-Bills and 1,126% more than long-term US Government bonds.

Finally after 92 years (i.e. 1926 to 2018):

T-Bills
(3.3% p.a.)
US Gov’t Bonds
(5.5% p.a.)
US Large Stocks
(10% p.a.)
Year 92$19,825.75$137,792.72$6,428,757.36

Stocks have outperformed T-Bills by a whopping 32,326% and long term US Government bonds by 4,566%!

The difference between these results is why the biggest risk is not investing at all. By focusing on consistently putting money into the market while you’re young, the power of compounding can start to take hold. 

To help you get started, we have created the twelve-part podcast series Get Started Investing with Equity Mates. Check out the trailer here and subscribe today:


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