A lawyer mate of mine was listing reasons why he’s happy to have his wealth out of the stock market and in term deposits and property. I think he’s a scaredy cat.

I was having coffee yesterday with Steve, a lawyer mate of mine, who was listing reasons why he’s happy to have his wealth out of the stock market and in term deposits and property. I tried to explain how you can live with the annoyances of the seemingly irrational behaviour of stock prices and still do well from ‘gambling’ on listed companies.

That conversation had a lot relevance to the US market story that was driving Wall Street overnight. Now before I reveal what that story was, recall what has happened this year to stocks.

First up, January was a booming start to the year, which made people like me tell people like you that history says “as January goes, so goes the year,” for the year ahead. This was then followed by a negative February, not helped by the early March failure of Silicon Valley Bank, Credit Suisse and others. However, this gave way to a strong end to March, with the 2022 despised tech stocks re-loved, such that the Nasdaq Composite was up 16% for the first quarter of 2022.

Did I say, “as January goes, so goes the year?” This chart shows that this favourable wind for tech stocks has also pushed along our market. The chart below looks at the S&P/ASX 200 for the past six months. You will see the ups and downs of investors positive one moment and then negative, as their confidence has been buffeted by fears around inflation, aggressive interest rate rises, bank anxiety and recession.

That said, anyone who invested in stocks six months ago by buying the ETF that gives you the 200 stocks in the Index is up about 6.16% and would’ve picked up at least 4% in dividends and franking credits, so let’s call it 10%. Sure, over the next few weeks they could lose a bit of that 6% gain, especially if the short-term story overnight grows in strength that weak economic data yesterday in the US points to a greater chance of a recession.

You might be saying, where were those thoughts when the Nasdaq zoomed 16% higher since January 1? Well, even when that was happening on a daily or weekly basis, the short-term battle between optimism and pessimism for stocks went on but it is has been the trend that has been the stock market players friend since October 3 here in Australia.

Since then, that ETF is up over 12% plus dividends of at least 4%, so now we’re talking about a 16% gain investing in the best 200 Australian companies listed on the stock market.

This favourite chart of mine tells you why I can ignore or live with the fears that stop Steve from risking his wealth in stocks. This shows what happened to $10,000 invested in the All Ords from 1970 to 2009 — one year after the stock market lost 50% because of the GFC. The chart from Vanguard is based on re-investing dividends and letting the $10,000 investment just roll on — up and down — like a snowball.

Check out the blue line where market worry warts like my mate would’ve been tearing their hair out and looking up phone numbers for shrinks. If you can ignore six or so crashes or market slumps, that $10,000 became $453,542!

That’s the huge reward if you invest in quality stocks that are diversified as well as pay income. And you stay for the long haul, learning how to cope with the many short-term, scary stories from the market that get media magnification, because that’s what they’re paid to do.

However, the fear that they peddle creates scared investors who opt for safety and low returns unless they’re really good at investing property i.e., being able to buy when everyone wants to sell and sell when others are mad keen to buy.

For those scaredy cats who invested say in a CBA term deposit in 1992 instead of the CBA stock, have a look at what they would’ve got in terms of interest — the red bars — compared with the dividends they were paid for being a bigger risktaker — the blue bars.

And then there’s the CBA share price pay-off as well.

That’s a rise from $7.51 to $99.06!

I don’t like investing in one or a small number of stocks but, just like Warren Buffett says he’s happy to invest in the USA and its potential, using an ETF for Australia’s best companies I can bet on, or more correctly invest in, Australia’s future.

All I have to do is learn to cope with the short-term scary times to enjoy the long-term positive times. To get wealthier, you have to have the right mindset created by understanding the history of money-making. I hope Steve reads this.

(If you liked this, you might like my book Join the Rich Club.)