I’m a finance geek and like to dig around in the details like asset allocation or tax strategies. However, sometimes I read some news that reminds me to step back and look at the big picture. Half of all Americans don’t own any stocks at all. Before the 2008 financial crisis, about 2/3rds of US adults had some skin in the stock market, but that number dropped significantly and hasn’t rebounded. From a Gallup poll:

Even out of the half of Americans with some amount of stock ownership, most of them have no idea about stock market performance. Betterment conducted a survey [pdf] asking people to estimate the US stock market performance since December 2008, and Axios made it into a nice chart. Note that all of the respondents in the Betterment survey stated they had at least $1 invested in the stock market.

About half of respondents either thought the stock market dropped or stayed the same over the last 10 years. The correct answer is that the stock market is up over 200%. Only 8% of people who own stock got this right.

I worry that this means that only a small percentage of people are aware of the potential power of investing in productive assets like businesses. Sure, 200% is a lot, but over 10 years it’s not an insane number. At 12% annual growth, your money doubles in 6 years and thus quadruples in 12 years. At 8% annual growth, your money doubles in 9 years and thus quadruples in 18 years. Even at 6% annual growth, your money will double in 12 years and thus quadruples in 24 years.

Owning productive assets like public companies, real estate, or private business ownership gets you on the train powered by compounding exponential growth. Debt like student loans, credit card balances, even a home-equity loan for a new kitchen remodel, that’s like putting the compound interest engine in reverse. I know that it is easier said than done, but one of my favorite quotes from Mr. Money Mustache is that you should treat “debt as an emergency”. The difference between even putting a $50 into stocks a week, versus paying $50 week in interest to carry your debt each month can become the difference between having choices and the treadmill lifestyle forever.

If someone realizes the power of compounding, then they are more likely to covet that rental property or share of Apple stock as much as a new BMW lease or Viking stove. I love buying new shares of VTI. It gives me a dividend gift every quarter. This appreciation is the key to the constant accumulation of productive assets and not stuff.

Big Picture: Is Compounding Growth Working For or Against You? from My Money Blog.


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