{"id":182371,"date":"2025-04-23T20:28:59","date_gmt":"2025-04-24T02:28:59","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=182371"},"modified":"2025-04-23T20:29:21","modified_gmt":"2025-04-24T02:29:21","slug":"history-says-stocks-still-make-sense-but-with-caveats","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/history-says-stocks-still-make-sense-but-with-caveats","title":{"rendered":"Even With the Latest Drama\u2014History Says It Still Makes Sense to Hold Stocks"},"content":{"rendered":"\n

The S&P 500 has fallen more than 14% from its high in February, putting it in correction territory. The Nasdaq is down 19.3%, flirting with a bear market, and the Russell 2000 collapsed into bear territory with its fall of 23.8%. <\/span><\/p>\n\n\n\n

Plenty of investors have started panic-selling (which you should never<\/span>, ever<\/span> do).<\/span> But even level-headed investors are asking \u2014 should I keep investing in the stock market, with so much economic uncertainty right now? <\/span><\/p>\n\n\n\n

You need to do what\u2019s right for you<\/span>, of course,<\/span> and invest in a way that lets you sleep at night.<\/span> Personally,<\/span> I have continued investing in stocks <\/span>every week<\/span> and in real estate each month.<\/span> Here\u2019s why.<\/span><\/p>\n\n\n\n

Historical Stock Returns<\/span><\/h2>\n\n\n\n

Spoiler alert:<\/span><\/strong> stocks go down sometimes. <\/span>But for investors who can keep their cool and make financial decisions with their brain instead of their stomachs<\/span>, stocks offer strong returns over the long term<\/span>.<\/span> <\/span><\/p>\n\n\n\n

A <\/span>study of 16 developed economies<\/span><\/a> over 145 years found that stocks generated an average long-term return of around 7%. In the US, stocks have done even better. The S&P has returned an <\/span>average annualized return of 10.49%<\/span><\/a> over the last century, including dividends. Over the last decade, it\u2019s averaged 12.99%. <\/span><\/p>\n\n\n\n

Don\u2019t get me wrong, I\u2019m not trying to convince you to invest in stocks <\/span>over <\/span><\/em>real estate. I\u2019m making a case for diversifying your portfolio to include <\/span>both<\/span> stocks <\/span>and <\/span><\/em>real estate. <\/span><\/p>\n\n\n\n

I <\/span>hope<\/span> for around 10% annualized returns from my stock investments in the long term.<\/span> For my passive real estate investments that I invest in monthly, I target 15%+ annualized returns. Each serves a different role in my portfolio. <\/span><\/p>\n\n\n\n

The Roles and Advantages of Stocks<\/span><\/h2>\n\n\n\n

To begin with, stocks offer liquidity. You can buy and sell them anytime, instantly, for free. Real estate can\u2019t claim the same (except for <\/span>REITs<\/span><\/a>, which share an uncomfortably <\/span>high correlation to the stock market<\/span><\/a>). <\/span><\/p>\n\n\n\n

Stocks also offer easy diversification. <\/span>With a single ETF,<\/span> you can invest in the entire US stock market (VTI).<\/span> To gain exposure to the rest of the world, you can buy shares in another ETF (VEU). Or you can drill down as narrowly as you like to specific sectors, countries, or market caps. <\/span><\/p>\n\n\n\n

Stocks make completely passive investments. You click a button, and <\/span>you\u2019re done<\/span>. <\/span><\/p>\n\n\n\n

It\u2019s also free and easy to invest in stocks through tax-advantaged accounts like IRAs, 401(k)s, HSAs, 529 plans, and so forth. <\/span>With a few clicks,<\/span> you can open a free account through brokerages like Schwab or Vanguard.<\/span> You don\u2019t need to hassle with opening a <\/span>self-directed IRA<\/span><\/a> or solo 401(k) and paying high custodian fees, like you do with real estate investments.<\/span><\/p>\n\n\n\n

The Best Times to Buy Feel Horrible In the Moment<\/span><\/h2>\n\n\n\n

It\u2019s easy for armchair experts to look back at the stock market and say, \u201cOf course, that was the bottom of the market, and everyone should have bought!\u201d <\/span><\/p>\n\n\n\n

Guess what? In the moment, the bottom of the market feels terrifying. The news carries nothing but doom and gloom, highlighting real fears about recession, geopolitical tensions, pandemics, or whatever the boogeyman du jour is. <\/span><\/p>\n\n\n\n

No one knows it\u2019s the bottom. That includes professional investment analysts and economists with access to far better data than you or I have as retail investors. If they can\u2019t get it right consistently\u2014and they can\u2019t\u2014you certainly can\u2019t. <\/span><\/p>\n\n\n\n

So stop trying to get clever by timing the market, and <\/span>just<\/span> keep investing on autopilot through thick and thin.<\/span> \u201cPeople underestimate how emotional the ride can be,\u201d Noah Barger of <\/span>NobleHouseBuyers.com<\/span><\/a> told me. \u201cIn real estate, we can touch and see our assets. With stocks, it\u2019s all about managing your mindset through the volatility.\u201d<\/span><\/p>\n\n\n\n

To underscore his point, the data is stark: the average retail investor <\/span>earns dismal returns<\/span><\/a> compared to the market at large. <\/span><\/p>\n\n\n\n

Downsides and Risks to Stocks Right Now<\/span><\/h2>\n\n\n\n

\u201cYeah, but this time it\u2019s different! <\/span>There are tariffs <\/span>and recession risk and<\/span> inflation and an unpredictable guy with a fake tan in the White House!\u201d<\/span> <\/span><\/p>\n\n\n\n

Every investor in history has felt the fear that \u201cthis time it\u2019s different.\u201d <\/span>In 2020, <\/span>it was a global pandemic<\/span> caused by a new virus that no one understood.<\/span> In 2008, it was the fear that our entire global financial system would collapse. And so on, backward through history. <\/span><\/p>\n\n\n\n

I\u2019ll <\/span>say it again<\/span>: the stock market is volatile. Sometimes, it crashes down like a tsunami. That\u2019s why investors approaching and entering retirement move some of their money out of it to more stable investments. <\/span><\/p>\n\n\n\n

And that\u2019s why the rest of us who stay the course earn such strong returns from stocks. <\/span><\/p>\n\n\n\n

Even so, you\u2019re not wrong that market risks feel higher than usual right now. Let\u2019s dig into a few of those risks. <\/span><\/p>\n\n\n\n

Stocks Still Feel Overpriced<\/span><\/h3>\n\n\n\n

Even after falling 14-24%, US stocks still look overpriced compared to historical norms. <\/span><\/p>\n\n\n\n

The <\/span>price\/earnings ratio of the S&P 500<\/span><\/a> is currently 25.14, down from around 30 earlier this year. Compare that to historical averages in the 15-20 range. <\/span><\/p>\n\n\n\n

Or consider the \u201cBuffett Indicator,\u201d the ratio of a country\u2019s stock market to its GDP. A healthy average is a ratio around 1:1, or stocks totaling around 100% of GDP. Today, US stocks still sit at <\/span>177.1% of GDP<\/span><\/a>, down from around 200% earlier in the year. <\/span><\/p>\n\n\n\n

Recession Risk and Tariff Uncertainty<\/span><\/h3>\n\n\n\n

I get it<\/span>, global<\/span> trade and geopolitical tensions feel strained due to all the tariff turmoil. It unsettles me, too. <\/span><\/p>\n\n\n\n

There\u2019s a real risk of recession, and stocks do poorly in recessions. Look for yourself:<\/span><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

That said, real estate isn\u2019t hunky dory during recessions, either. Some sectors do better <\/span>than others<\/span> during recessions, just like some stock market sectors do better than others. Read up on <\/span>recession-resilient real estate<\/span><\/a> for some fresh ideas. <\/span><\/p>\n\n\n\n

Stocks vs. Real Estate During Inflation<\/span><\/h3>\n\n\n\n

Make no mistake: the <\/span>risk of reignited inflation<\/span><\/a> from tariffs is real. <\/span><\/p>\n\n\n\n

Real estate <\/span>definitely<\/span> beats stocks during periods of high inflation. But stocks are no slouches (unlike bonds) during inflation either. <\/span><\/p>\n\n\n\n

Check out this breakdown comparing different <\/span>asset classes during periods of high inflation<\/span><\/a>:<\/span><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

How I\u2019m Investing Through These Risks<\/span><\/h2>\n\n\n\n

Trying to time the market is a fool\u2019s game. Instead, I practice <\/span>dollar-cost averaging<\/span><\/a>. <\/span><\/p>\n\n\n\n

Every week, my robo-advisor pulls money <\/span>out of<\/span> my checking account to invest in diverse stock ETFs. And every month, I invest $5,000 in passive real estate investments through SparkRental\u2019s co-investing club. <\/span><\/p>\n\n\n\n

I continued investing in multifamily and other real estate classes through the <\/span>bear market they\u2019ve suffered<\/span><\/a> over the last three years. And in doing so, I got into some great deals at bargain prices. <\/span><\/p>\n\n\n\n

Likewise, I continue investing in stocks today, even though the mood is spooked. I\u2019m not smart enough to predict the future. But I\u2019m level-headed enough to keep investing even when other investors panic-sell. <\/span><\/p>\n\n\n\n

Other real estate investors I frequently chat with <\/span>also aim <\/span>to <\/span>simply<\/span> hold steady during turmoil<\/span>.<\/span> \u201cPassive investing works, but passive learning doesn’t,\u201d says Austin Glanzer of <\/span>717HomeBuyers.com<\/span><\/a>. \u201cI treat stocks like I treat real estate: you need a plan, an understanding of the risks, and discipline to hold through downturns.\u201d <\/span><\/p>\n\n\n\n

If you can keep a cool head when others lose theirs, you\u2019ll blow past their returns in the long run.<\/span><\/p>\n\n\n","protected":false},"excerpt":{"rendered":"

The S&P 500 has fallen more than 14% from its high in February, putting it in correction territory. The Nasdaq is down 19.3%, flirting with a bear market, and the […]<\/p>\n","protected":false},"author":158586,"featured_media":182361,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7383],"tags":[],"class_list":["post-182371","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/182371","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=182371"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/182371\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/182361"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=182371"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=182371"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=182371"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}