As you can imagine, I’ve heard them all. Every story from everyone’s “in the know” uncle or someone who watched a Tucker Carlson special (by the way, I got nothing but love for Tucker other than his sensationalizing he MUST do for ratings) or the horror story from their neighbor. What specific story am I referencing? Stock Market projections. I can bet that at least once a day, I will hear someone tell me why the stock market will crash and never return. Yikes! Imagine my fear, considering mine and those of the 20 members of our team, depends on the growth of stocks over time. The fruit of the spirit is love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness, self-control, and fear. Whoops, wait a minute, one of those doesn’t belong. Fear or anxiety is often irrational because it’s based on a lack of knowledge; therefore, let’s dig into what the stock market is, how it works, and why it’s been one of the best wealth-building tools the world has ever seen!

The stock market is a powerful tool for building wealth, and it has transformed the financial landscape of the world. It allows individuals to invest in companies and participate in their growth, providing an opportunity to increase wealth over time. At its core, the stock market is a platform for buying and selling shares in publicly traded companies. When an individual buys a share of a company, they become a partial owner of that company, and their investment increases or decreases in value based on the performance of the company. If the company performs well, the stock price will increase, and investors will make a profit. Conversely, if the company performs poorly, the stock price will decrease, and investors will lose money.

What causes a stock to perform over time?

There are four essential components to what causes a stock to go up or down over time. Earnings growth is one of the primary factors that can cause a stock to go up in value. When a company reports higher earnings, investors tend to be more optimistic about the future prospects of the company. This can lead to increased demand for the company's stock, which drives up the price.

Well, John-Mark, my uncle said corporate earnings are going to fall off a cliff and stay there forever, shouldn’t I be worried? That has never happened. What is their rationale for that? Usually, it’s something political, and let me remind you, while I most likely adhere to a similar political ideology as you do, considering I have a total Biblical worldview with a belief in the complete inerrancy of scripture, it does the other party no good to crash the economy. Why so that China can be the world’s superpower and the one thing they long for power – they lose! Of course, not; they, as you do, want the economy to grow, and that’s why regardless of the political party, the stock market has delivered similar returns for Democrat and Republican administrations. Take a look at this chart right here

– it’ shows the Earnings Per Share growth of the S&P 500 going back to 2007. A few political parties in there, and you’ll notice it has consistently gone up and to the right. Not constant because there is no perfection in this world, but there has been consistency.

Wonder why the interest rate increases we saw last year, at a historical breakneck pace, were destructive to the stock market's value last year? If interest rates are low, investors may be more inclined to invest in stocks because they are the only game in town instead of bonds, leading to increased demand for stocks and driving up prices. However, when rates go up and normalize as they have today, you can purchase the Schwab Money Market with a current yield of 4.5%, short-term Treasury Bonds are paying in the high 4%, and brokered bank CDs (which are purchased through Advisors like Whitaker-Myers Wealth Managers) are paying slightly over 5%. Those levels of rates attract money out of stocks for a while, creating less demand for stocks, especially for companies without a compelling growth story. Financial Advisor, Jake Buckwalter just recently wrote an article about what to do with excess cash right now.

Investor sentiment can also play a role in the value of a stock. Suppose investors are generally optimistic about the prospects of a company. In that case, they may be more willing to invest in its stock, even if the company's financial performance is not currently strong. This can create a "self-fulfilling prophecy" of sorts, where the positive sentiment leads to increased demand for the stock, driving up its price. Finally, supply and demand dynamics can impact the value of a stock. If a company has a limited number of shares available for purchase, and there is high demand for those shares, the price will increase as investors compete to buy them.

History Is on Your Side and This Time ISN’T Different

Over time, the stock market has proven to be one of history's most effective wealth-building tools. One of the key advantages of the stock market is its ability to generate long-term returns. Take a look at this chart from Prudential.

What you’ll see is that over the last thirty years, which has included some significant drops (2001,2002, 2008, 2020, 2022), we’ve still returned 9.65%, with 80% of the years producing a positive return and an average gain of 18.34% and 20% of the years negative with an average loss of -17.10%. Ever wonder what it does daily? It’s 53% of trading days are positive, and 47% of trading days are negative. While the stock market has provided the necessary growth long term, the daily grind of it can be stressful, hence why a good Advisor will tell their clients not to pay attention to daily, weekly or even monthly movements and invest for their time horizon and risk tolerance.

Another advantage of the stock market is its accessibility. Unlike other forms of investing, such as real estate or private equity, the stock market is open to anyone with a brokerage account and some disposable income. This means that individuals of all income levels have the opportunity to invest in the stock market and participate in its growth. 100 years ago, if you wanted to grow your wealth, you had significantly fewer options. Heavens, even 50 years ago, it was so expensive to invest that few people did it. However, this is one reason we appreciate Charles Schwab. If you read his autobiography, as I have, you’ll learn that he was a man on a mission to open investing to everyone. We can proudly say today the mission is accomplished because anyone with the will to improve their lives can seek out a good Advisor like, Whitaker-Myers Wealth Managers, who will help educate them to a blessed and fulfilled future.

Additionally, the stock market provides investors with a diverse range of investment opportunities. There are thousands of publicly traded companies to choose from, ranging from small startups to large multinational corporations. This means that investors can diversify their portfolios and spread their risk across a range of different companies and sectors. Our friend Dave Ramsey recommends investors consider investing into four basic categories: Growth, Growth & Income, Aggressive Growth, and International. Financial Advisor Logan Doup, has written our most popular article of all time, Understanding Dave Ramsey's Four Categories, which you can read here.

Overall, the stock market is a powerful tool for building wealth and has the potential to provide significant returns over the long term. It has democratized the world of investing, providing individuals of all income levels with the opportunity to participate in the growth of some of the world's most successful companies. However, it is the one thing that you must not allow emotions to control. When there is pain, you must not succumb to the pain and sell your investments. When there is gain, you must not get greedy and invest at the expense of other financial priorities such as paying down your home. That’s why we highly recommend clients turn off the news media and listen to our weekly “What We Learned in the Markets This Week Video” along with Ramsey Solutions suite of podcasts and media available for free wherever you consume content.

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Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

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