Advice to a 30 year old investor

What would you advise yourself if you had one opportunity to go back 30 years? One thing is for sure, you will be very wealthy today because investing with hindsight is very easy. If we take some examples of what happened over the last 30 years, we see that inflation in South Africa averaged around 8%. That will imply that if you go back 30 years and tell yourself to invest in a 30-year fixed-term deposit at 8% because you didn’t think shares were any good, you would have had an 832% return over the 30 years. That sounds pretty good until you realize that you literally only maintained the purchasing power of your money. To put this into context; something that will cost you R1 million today, cost only R107 000 thirty years ago.

If we look at Gold we see that the price was $817 in 1994 and today it is $2374. This is a 190% return in dollars over the 30 years. If we add to this the depreciation of the rand against the dollar, we get to a 1420% return in rand. Just for interest sake, the rand was at R3.61 to the dollar in 1994. So investing in Gold would have been better than an 8% fixed deposit, but we have to remember that Gold is volatile. It went down to $467 in 2001 and it is only now back at the peak it reached in 2011.

Looking at the S&P500 index, we see an increase of 1092% in dollar. You might say that this is no better than the fixed deposit in South Africa with its 832% return, but you will be forgetting that you have to add the depreciation of the rand back. It is 10 times better than Gold and remember that the average inflation in the USA was only 2.34% which means that over 30 years you only had to double your money to maintain your purchasing power. But, it is also volatile. You had no return in dollars from 2000 till 2013. So if you weren’t patient, you would never have received the returns it offered.

Lastly we can look at the Technology index in the USA. The Nasdaq gained 2243% over the 30 years. It was also a bumpy ride and patience would have been key.

You can argue that there were many other assets to invest in that would have given you a much better return and you would be right. Some people made a fortune in property, and more recently some people made a fortune in crypto and meme stocks, but they all came with a lot of risk. The closer we get to retirement, the bigger the impact on our lives if we should gamble with our savings and fail. If we could go back 30 years, we would all tell ourselves to invest in the Nasdaq and then swop everything and go into Bitcoin in 2009, but what then.

The reality is that we cannot go back, we have to invest today with no certainty as to what will happen tomorrow. What we can learn from the past is that equities will give you inflation-beating returns if you are patient and give them some time to go through the bad patches. It also teaches us that starting early will give us the advantage of compounding returns and that you don’t have to be clever to build a very solid core investment portfolio. The last thing we can take from this is the fact that there will be opportunities to get into something exciting that will boost our overall returns, but because the risk will be greater, those opportunities should rather be taken early in life and not when time is no longer on your side.

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