In early 1975, the S&P 500 Index was at 68.56. Since then, the S&P 500 Index has seen an impressive growth rate to its current level of around 1500. During that time, the S&P 500 Index has had 25 years of positive earnings and 7 years of negative returns. The best three years (1975, 1995 and 1997) were all above a 30% yield, with the best year 1995 being a yield of 34.11%. Only four years (1977, 2000, 2001 and 2002) resulted in a double digit loss, the worst year being 2002 that resulted in a 23.37% drop.

For me, the historical returns of the S&P 500 Index demonstrate two valuable lessons: the importance of diversification and the value of time when investing in the stock market. While I’m sure there are people who can correctly determine the best time to buy and sell stocks sometimes, I have yet to meet someone who can consistently “time the market”. However, if you can think in terms of “time to market” rather than timing the market, time becomes an ally rather than an obstacle. The longer your money is on the market, the more likely it is to achieve historic stock market returns.

Of course, diversification is also a very important factor. Individual stocks are subject to many more “ups and downs” than a well-balanced portfolio. This is the reason why most people who try to beat the market through short-term trading fail. It is very difficult to diversify properly when your portfolio changes every day due to new operations. As a result, at some point, a risk factor that has not been adequately diversified will have a significant impact on the operator’s portfolio in the short term. In general, some of the most successful investors, such as Warren Buffet, have been “buy and hold” investors who have put their money into quality stocks and then left the market to do the rest. Think of the stock market as a slow moving river, you can occasionally swim against the current, but it is much easier to swim with the current by letting the market help you push it.