Life Is Like Investing in the Stock Market

by Darren Wu on 9 October 2012 2 comments

Remember that famous quote in "Forrest Gump"? Forrest said, "My momma always said, 'Life was like a box of chocolates. You never know what you're gonna get.'"

While I believe there's lots of truth to that statement, I'm going to modify that quote to try and get you to think differently. Here's my version — "Life is like investing in the stock market. You'll go through your share of ups and downs. But as long as you're able to persevere through them, in the long run you'll come out on top." (See also: Why Invest in the Stock Market?)

Let's review some stock market history. There's no doubt that investing in the stock market is risky. To illustrate, take a look at the returns from the S&P 500 over the past 15 years:

  • 2011: 2.05%
  • 2010: 14.87%
  • 2009: 27.11%
  • 2008: -37.22%
  • 2007: 5.46%
  • 2006: 15.74%
  • 2005: 4.79%
  • 2004: 10.82%
  • 2003: 28.72%
  • 2002: -22.27%
  • 2001: -11.98%
  • 2000: -9.11%
  • 1999: 21.11%
  • 1998: 28.73%
  • 1997: 33.67

As you can see, in some years the stock market did really well. But in others, it performed horribly. How does this relate to life?

I'm sure that in your own life, you've had your good days when everything seems to go right. But you've also had your bad days, where a lot of things seem to go wrong.

How do you get through the hard times? Before I try to answer that, let's take a look at the stock market's approach.

Don't Put All Your Eggs in One Basket

The S&P 500 is named as such because the list includes 500 of the biggest companies in the U.S. As we invest in the index, all of the companies work together to provide us with the wealth we seek.

But not all companies perform at the same level. Companies that do well help carry the weight for other companies that perform poorly, so that the overall value of the index has increased over time.

For instance, in 2009, MetroPCS opened at a price of $14.86 per share, but closed the year by dropping all the way down to $7.63. Amazon, however, opened the year at $54.36, and closed the year at an astounding price of $134.52 per share. Yet as a result of the contributions of all 500 companies, the S&P 500 grew by an amazing 27.11 percent in 2009.

What's the Point?

Don't go through life alone. Just as the S&P 500 can be seen as a community of 500 companies, you need to be a part of a larger community as well.

Life can get hard. When it does, sometimes we need someone to cry with us when we cry. We need friends to help bear our burdens.

Other times, when life is good, we want others to celebrate with us in our victories. We want our friends by our side to thank them for sticking with us through thick and thin.

Let's get back to the stock market. Looking at stock market returns year-by-year may cause you to lose sleep at night. But if you invested for the long haul, you'd end up a winner.

Over the past 40 years, from 1972 to 2011, the S&P 500 had an annual growth rate of 9.86%. This means that if you started investing back in January 1972 with just $1,000, by December 2011, you'd have $42,990!

This shows the power investing through thick and thin, and having a long-term perspective.

Your Own Growth

Similarly, you can experience tremendous growth in your own life. If you're at a low point in life right now, you can position yourself for a brighter future. How?

Seek the help of friends and mentors. There are lots of people who have been further along on the road of life than you. They've faced the same challenges you're facing. And the good news is that many of them are willing to offer guidance and help you get out of your rut.

I'm also a big advocate of reading good books and learning valuable skills. The Personal MBA reading list is a great place to start. If cost is a concern, you can always borrow these books for free from your local library.

If you take action now, I'm sure that good things will come to you later.

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Guest's picture

Great post!! The easiest way to ride out the bumps is to tune out the media. They make everything seem worse off than it truly is. Just look at the market since the collapse in 2008 as example. If you listened to the media, you'd think the stock market would still be stinking up the joint. But in reality, it's been up every year since. The sad part is that many investors are still on the sidelines waiting to get back in.

Guest's picture
Adam

I really like this article. It helps us put it all in perspective. While we may freak out when the market is going down and CNBC is running shows saying it is the end of the world we need to realize it isn't the first time the markets have gone down or crashed. But if you look at the longer term trend in your figures it shows they eventually will make money. I guess the lesson is be ready to hold on to those stocks for the long run...but it is better if you have friends around when the sky is falling.