Want an Investment That Never Loses Money? Try Stocks!

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When it comes to conservative investments, most people think of things like savings accounts, CDs and Treasury bills. After all, each of these investments is either insured by the FDIC, in the case of savings accounts and certificates of deposits (CDs), or backed by the full faith and credit of the U.S. government, in the case of Treasuries.

But is there a case to be made that stocks are actually a “safer” investment for long-term investors than these insured and guaranteed options? Yes there is — and the case is actually quite strong.

Aren’t Stocks Risky and Volatile?

Over the short term, yes, stocks can take investors on quite a ride. On a daily basis, the price of the S&P 500 index regularly moves up or down by 1% or more, while during bear markets, the index can fall by 20%, 30% or even more. On the surface, this may not seem like “an investment that never loses money.”

But if you take a step back and look at the performance of the S&P 500 over the long haul, that risk of losing money goes up in smoke. 

According to Crestmont Research, from 1919 to 2024, the S&P 500 has never lost money over any 20-year rolling period. That’s an absolutely incredible statistic that shows what a reliable wealth creator the S&P 500 index has been over time. Remember that these 20-year rolling periods cover all of America’s tough financial times over the years, from the Great Depression to World War II to the “lost decade” of the 2000s.

During all of these difficult economic periods, the S&P 500 index not only failed to lose money — its worst two-decade average return was 3.1% annually. On the upside, the best average annual return posted by the resilient index over a 20-year period was a whopping 17.1%. 

How ‘Safe’ Investments Can Actually Lose You Money

Unless you sell before maturity, you can always count on getting your money back from ultra-conservative investments like CDs or Treasury bills. Savings accounts don’t fluctuate in value at all, so you’ll always know how much money you can access at a moment’s notice in a savings account. But the trade-off for this certainty is the loss of upside gains. And when you factor taxes and inflation into the equation, that “sure-thing” return you’re getting from these types of investments may rapidly vanish.

Here’s an example. Imagine that you invest $50,000 in a 10-year CD with an interest rate of 5%. Every year, you’ll earn $2,500 in income, and at the end of the 10-year period, you’ll receive your $50,000 back. But there’s a two-fold problem with this scenario, at least in terms of building long-term wealth.

First, every year you earn that $2,500, you’ll have to pay ordinary income tax on it. If your average tax rate is 20%, that means you’ll lose $500 to taxes every year, and your net return will drop to just 4% annually. 

Perhaps even worse, however, are the effects of inflation. With a modest 3% inflation rate, in 10 years, the $50,000 you originally invest will only have a purchasing power of about $36,871 in today’s dollars. While your $50,000 could cover the cost on average brand-new car in 2025, it’s highly unlikely that will be true in 2035, when near car prices will likely top $65,000.

All of your other daily expenses, from food to transportation to utilities, will likely cost more as well. The bottom line is that the $50,000 you get back in 2035 won’t be worth nearly as much in terms of purchasing power as it is today. If you invested in the S&P 500 over those 10 years instead, however, your money will likely have more than doubled, even at a modest 7% average annual return.

Caveats To Consider

One of the most important caveats to this data is that past performance doesn’t guarantee future results. Just because the S&P 500 has never lost money over any 20-year rolling period doesn’t mean that trend will continue. 

The other critical takeaway is that even in boom periods, you are likely to lose money over the short run at some time or another if you own the S&P 500 index. To reap the rewards and participate in the S&P 500’s long-term track record of success, you’ll have to weather the short-term storms and remain invested. 

The Bottom Line

Although no one can guarantee the S&P 500 index will continue to generate positive returns over 20-year periods, there’s one big reason to think that it might. The S&P 500 index consists of the 500 largest companies in America, and that makes it an excellent proxy for the country’s economy as a whole.

While there’s no avoiding the business cycle, and there will always be the occasional recession, overall, the story of the American economy is one of incredible long-term growth. If the engine of the biggest economy in the world can keep chugging, it’s likely that the S&P 500 will keep its stellar long-term track record intact. 

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