How About that Stock Market!?

We haven’t been talking about stocks much on Mr. Money Mustache recently, and that is for good reason. Despite the tendencies of the TV news to report on the movements “The Dow” as if it were a sports team, there really is no reason for wealthy people like ourselves to follow the mostly-meaningless fluctuations of stock prices.

But since the index (and its more useful big brother the S&P 500) has recently been hovering around its all-time high (a high first reached in March, 2000 and then again in October, 2007), there is naturally more curiosity, excitement and fear buzzing about the subject than usual. Let’s take a look at the price history of the S&P 500, on this graph which just coincidentally covers my entire life:


Stock market index price since the Disco era. But this graph is misleadingly pessimistic – it does not account for dividends, which are at least half of the reason we buy stocks around here.

A Fortune Teller might interpret that graph with pretty scary results: “every time it gets to this level, it crashes for another 6-7 years!”

Should we be scared? The answer depends on your level of understanding of investing itself. Consider the following perspectives I’ve heard from various people over the past month:

  1. “I am very risk-averse, so I’m afraid to invest in stocks. I have $100,000 sitting in 1% interest savings accounts, even though I have a big mortgage.”
  2. “I sold all my stocks a few months (or years) ago. I’m waiting for a crash, then I’ll re-invest.”
  3. “I believe the market is overvalued, so while I am leaving 401(k) deductions on automatic and not selling anything, I am using extra cash to  pay down my 4.5% mortgage for now instead of buying more stocks. Will re-evaluate if there is a crash.”
  4. “I use rental real estate as my primary investment vehicle. In my area, this returns 10% or more after inflation, making the stock market a distant second choice for me.”

The first person is clearly not headed for financial success with that strategy. With returns less than half the rate of inflation, she will never reach true financial independence. Every dollar you own is an employee that can work around the clock for you without complaint – provided you give it the opportunity.

Person #2 is playing with fire. He believes he can outsmart the collective intelligence of the world’s investors, and time the crashes and upward spikes. The reason this is a statistical losing game is that he will miss out on dividends during times he is out of the market, incur extra trading costs, and tend to mis-time some of the market moves, losing precious percentage points.

Person #3 may have a valid case, provided she has correctly identified an expensive stock market. A 4.5% return via paying off a mortgage is a very nice hedge against volatile stocks, as it is guaranteed. But once she is out of debt, she’ll need to continue investing somewhere else to avoid amassing a mattress full of idle dollar bills – at this point, she’ll need to invest in something with solid above-inflation returns.

Person #4 may be the winner.. for now. In certain cities, US housing continues to be among the cheapest in the rich world when measured on a price-to-rent ratio. That’s why my own next investment will probably be in another rental house. But note that I’m not selling stocks to do it – for me, that would be putting too many eggs in one basket.

So where does this leave us? It depends on what point you are starting from. For those uncertain about investing and stocks in general, I’d like to present an entertaining 16-part series on the subject from my fellow early retiree pal Jim Collins, who writes about Business, Money and Life over at jlcollinsnh.com. You see, spring time is here in Colorado, and that means I am finding it increasingly difficult to spend time inside with the computer. But now you can bookmark this list, and work your way through them (and the rest of his blog) during the inevitable slack times on Mr. Money Mustache. Thanks Jim!

Stocks — Part 1: There’s a major market crash coming!!!! and Dr. Lo can’t save you.
Stocks — Part II: The Market Always Goes Up
Stocks — Part III: Most people lose money in the market.
Stocks — Part IV: The Big Ugly Event
Stocks — Part V: Keeping it simple, considerations and tools
Stocks — Part VI: Portfolio ideas to build and keep your wealth
Stocks — Part VII: Can everyone really retire a millionaire?
Stocks — Part VIII: The 401K, 403b, IRA & Roth Buckets
Stocks — Part IX: Why I don’t like investment advisors
Stocks — Part X: What if Vanguard gets Nuked?
Stocks — Part XI: International Funds
Stocks — Part XII: Bonds, and a bit on REITS
Stocks — Part XIII: Withdrawal rates, how much can I spend anyway?
Stocks — Part XIV: Deflation, the ugly escort of Depressions.
Stocks — Part XV: Target Retirement Funds, the simplest path to wealth of all
Stocks — Part XVI: Index Funds are really just for lazy people, right?


  • Doug October 15, 2014, 9:51 am

    Lately stocks, especially energy stocks, have taken a big drop lately. Over the last few years I’ve done well investing in XEG, iShares Energy Fund listed on the TSX. I scooped up a bunch when it was on sale in 2012, then sold it all earlier this year at $19, $20, and the last at $21. Now, with the Black Friday sales coming unusually earlier this year I’ve been buying back in at $18, $17, and $16 and will buy more if it goes below $15. As I said in my above comment dated May 5, it’s all so ridiculously simple. The speed has dropped and the governor has opened up the throttle again.

  • Doug November 27, 2014, 10:09 am

    Black Friday came a day early! Has anyone checked the price of XEG lately? It’s below 15 bucks, what a bargain! Similarly the high yield bond funds AHY.UN and HHY.UN (listed on the TSX) are also on sale. The governor opened the throttle to 100% open, then the switch closed to engage the electric clutch for the supercharger. BUY, BUY, BUY!!!!!!!

  • David Baker September 16, 2015, 5:03 pm

    MMM, Roth IRA’s are at tax advantaged and awesome, but I want to retire before I’m 59 1/2. Where do i invest? Do I still max out my Roth before moving on to regular investments or do I screw the roth and move right into investments that I can work with whenever I’m ready to retire without an early withdrawal penalty?

    • Nathanael September 22, 2015, 11:24 pm

      Warning: this is not investment advice and I am not your investment advisor. But you may not have looked up the rules. So here are some important points:

      — You can withdraw the amount deposited into the Roth (the basis) without an early withdrawal penalty.

      Therefore, I would personally probably max out the Roth for a while. You can always get out the money you put in, even though you can’t get out the earnings until 59 1/2.

      — If you plan it properly, you can also take an early withdrawal of $10K from a Roth to buy your first home, provided the Roth has been open for 5 years.
      — You can also pull out as much as you need to pay for college, provided the Roth has been open for 5 years. — You can also pull it all out if you become disabled.

      — If you pull out even more than the limit, the penalty is only 10%. A.k.a. 2-3 years of earnings.

      If you already have so much money in the Roth that your financial projections say that it will comfortably cover your entire life after 59 1/2… you know, enough to cover your life from age 60 to age 100, including medical expenses… then maybe you stop putting money in the Roth.

  • Henry H April 10, 2017, 11:25 am


    I’ve been churning through this series, and I just wanted to suggest and hope that you update this with links to articles XVII – XXX (unless you have reasons for not doing this) for future readers. The articles don’t really appear in order on his site, either, even when you look at the ‘stock series’ page. I’ll find my way through it, regardless – but this will be a value add for future mustachians imo.


    • Henry H April 11, 2017, 9:40 am

      I just found JLcollinsnh stock series link page. d’oh
      Still think this one should be updated so folks don’t think they’re done before they done learned it all.


  • Ollie September 15, 2017, 6:05 am

    “Every dollar you own is an employee that can work around the clock for you without complaint – provided you give it the opportunity”

    Thats just the best statement i’ve heard in a long time, i’m definitely going to embrace that and pass onto others!

    Love it


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