Even With the Latest Drama—History Says It Still Makes Sense to Hold Stocks

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In This Article

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%.

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

You need to do what’s right for you, of course, and invest in a way that lets you sleep at night. Personally, I have continued investing in stocks every week and in real estate each month. Here’s why.

Historical Stock Returns

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

A study of 16 developed economies 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 average annualized return of 10.49% over the last century, including dividends. Over the last decade, it’s averaged 12.99%.

Don’t get me wrong, I’m not trying to convince you to invest in stocks over real estate. I’m making a case for diversifying your portfolio to include both stocks and real estate.

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

The Roles and Advantages of Stocks

To begin with, stocks offer liquidity. You can buy and sell them anytime, instantly, for free. Real estate can’t claim the same (except for REITs, which share an uncomfortably high correlation to the stock market).

Stocks also offer easy diversification. With a single ETF, you can invest in the entire US stock market (VTI). 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.

Stocks make completely passive investments. You click a button, and you’re done.

It’s also free and easy to invest in stocks through tax-advantaged accounts like IRAs, 401(k)s, HSAs, 529 plans, and so forth. With a few clicks, you can open a free account through brokerages like Schwab or Vanguard. You don’t need to hassle with opening a self-directed IRA or solo 401(k) and paying high custodian fees, like you do with real estate investments.

The Best Times to Buy Feel Horrible In the Moment

It’s easy for armchair experts to look back at the stock market and say, “Of course, that was the bottom of the market, and everyone should have bought!”

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.

No one knows it’s 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’t get it right consistently—and they can’t—you certainly can’t.

So stop trying to get clever by timing the market, and just keep investing on autopilot through thick and thin. “People underestimate how emotional the ride can be,” Noah Barger of NobleHouseBuyers.com told me. “In real estate, we can touch and see our assets. With stocks, it’s all about managing your mindset through the volatility.”

To underscore his point, the data is stark: the average retail investor earns dismal returns compared to the market at large.

Downsides and Risks to Stocks Right Now

“Yeah, but this time it’s different! There are tariffs and recession risk and inflation and an unpredictable guy with a fake tan in the White House!”

Every investor in history has felt the fear that “this time it’s different.” In 2020, it was a global pandemic caused by a new virus that no one understood. In 2008, it was the fear that our entire global financial system would collapse. And so on, backward through history.

I’ll say it again: the stock market is volatile. Sometimes, it crashes down like a tsunami. That’s why investors approaching and entering retirement move some of their money out of it to more stable investments.

And that’s why the rest of us who stay the course earn such strong returns from stocks.

Even so, you’re not wrong that market risks feel higher than usual right now. Let’s dig into a few of those risks.

Stocks Still Feel Overpriced

Even after falling 14-24%, US stocks still look overpriced compared to historical norms.

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

Or consider the “Buffett Indicator,” the ratio of a country’s 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 177.1% of GDP, down from around 200% earlier in the year.

Recession Risk and Tariff Uncertainty

I get it, global trade and geopolitical tensions feel strained due to all the tariff turmoil. It unsettles me, too.

There’s a real risk of recession, and stocks do poorly in recessions. Look for yourself:

That said, real estate isn’t hunky dory during recessions, either. Some sectors do better than others during recessions, just like some stock market sectors do better than others. Read up on recession-resilient real estate for some fresh ideas.

Stocks vs. Real Estate During Inflation

Make no mistake: the risk of reignited inflation from tariffs is real.

Real estate definitely beats stocks during periods of high inflation. But stocks are no slouches (unlike bonds) during inflation either.

Check out this breakdown comparing different asset classes during periods of high inflation:

How I’m Investing Through These Risks

Trying to time the market is a fool’s game. Instead, I practice dollar-cost averaging.

Every week, my robo-advisor pulls money out of my checking account to invest in diverse stock ETFs. And every month, I invest $5,000 in passive real estate investments through SparkRental’s co-investing club.

I continued investing in multifamily and other real estate classes through the bear market they’ve suffered over the last three years. And in doing so, I got into some great deals at bargain prices.

Likewise, I continue investing in stocks today, even though the mood is spooked. I’m not smart enough to predict the future. But I’m level-headed enough to keep investing even when other investors panic-sell.

Other real estate investors I frequently chat with also aim to simply hold steady during turmoil. “Passive investing works, but passive learning doesn’t,” says Austin Glanzer of 717HomeBuyers.com. “I treat stocks like I treat real estate: you need a plan, an understanding of the risks, and discipline to hold through downturns.”

If you can keep a cool head when others lose theirs, you’ll blow past their returns in the long run.

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