When it comes to conservative investments, most people think of things like savings accounts, CDs and Treasury bills. After all, each of these investments is either insured by the FDIC, in the case of savings accounts and certificates of deposits (CDs), or backed by the full faith and credit of the U.S. government, in the case of Treasuries.
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But is there a case to be made that stocks are actually a “safer” investment for long-term investors than these insured and guaranteed options? Yes there is — and the case is actually quite strong.
Over the short term, yes, stocks can take investors on quite a ride. On a daily basis, the price of the S&P 500 index regularly moves up or down by 1% or more, while during bear markets, the index can fall by 20%, 30% or even more. On the surface, this may not seem like “an investment that never loses money.”
But if you take a step back and look at the performance of the S&P 500 over the long haul, that risk of losing money goes up in smoke.
According to Crestmont Research, from 1919 to 2024, the S&P 500 has never lost money over any 20-year rolling period. That’s an absolutely incredible statistic that shows what a reliable wealth creator the S&P 500 index has been over time. Remember that these 20-year rolling periods cover all of America’s tough financial times over the years, from the Great Depression to World War II to the “lost decade” of the 2000s.
During all of these difficult economic periods, the S&P 500 index not only failed to lose money — its worst two-decade average return was 3.1% annually. On the upside, the best average annual return posted by the resilient index over a 20-year period was a whopping 17.1%.
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Unless you sell before maturity, you can always count on getting your money back from ultra-conservative investments like CDs or Treasury bills. Savings accounts don’t fluctuate in value at all, so you’ll always know how much money you can access at a moment’s notice in a savings account. But the trade-off for this certainty is the loss of upside gains. And when you factor taxes and inflation into the equation, that “sure-thing” return you’re getting from these types of investments may rapidly vanish.
Here’s an example. Imagine that you invest $50,000 in a 10-year CD with an interest rate of 5%. Every year, you’ll earn $2,500 in income, and at the end of the 10-year period, you’ll receive your $50,000 back. But there’s a two-fold problem with this scenario, at least in terms of building long-term wealth.
