This was in Monday’s Wall Street Journal, it depicts the average investment asset allocation by generation:

The title of the article was “The Biggest Mistake People Make – Decade by Decade”
And if you can’t tell from the picture alone, Millennial’s (and every other generation’s) biggest mistake is playing it too safe – allocating 70% (!) of their money in cash.
As a millennial myself, I often wonder just what it is that makes investing so scary for so many.
My thought is that our apprehension to investing is due to the roller coaster stock market ride we have experienced over the last 20 years, and it has scarred us.
Let’s take a quick review of the last 15 years:
First, we grew up and saw the havoc caused by the 2000 tech bubble bursting. Many popular tech stocks fell 90%+, the general stock market fell about 30%.

Then less than a decade later we experienced the worst economic downturn since the great depression, stocks fell more than 50%.

In total, we saw about 13 years where the market went nowhere (one of the longest periods with a 0% return in history).

Because of this, I think most write off equity investing as too risky. After all, what have we seen but a long term trip to seemingly nowhere?
Run and Hide? – Not So Fast
But I want to highlight the long term damage this fear of stocks can cause. And show that even with one of the worst periods in history, it would have STILL been better to be investing in stocks than keeping money in cash.
First, what has an asset allocation with 70% in cash returned historically? Using our Asset Allocation Calculator:

If you invested 70% of your savings in cash (here I’m assuming cash is earning interest equal to a 3 month treasury bond, which is probably hugely overestimating the returns you would get on cash), 14 % in stocks and spread the rest around various assets like Millennials have today, over the last 33 years you would have achieved a total compounded growth of 1525%. Every $100 would have turned into $1,626. Not so bad right?
First, inflation eats $577 of that gain (according to the U.S. government’s CPI data).
So over 33 years you have 10x’ed your money after inflation. An average annual return after inflation of 7.23%. Not bad right?
Not so fast, look at what happens if you simply swap the cash and equity allocations:

A 5775% total return. A 12.78% average annual return after inflation.
Think about that for a minute, this is despite some terrible events over the last 30 years:
- 1973-1975 Recession. One of the worst recessions since the great depression. The recession lasted 16 months, oil prices quadrupled, unemployment reached 9%, the U.S. went off of a gold backed currency and stocks fell 14% in 1973 and another 25% in 1974.
- 1987 Stock Crash: The worst day in stock market history. Stocks lost 22% of their value in 1 single day. If you had a million dollars invested in the general stock market you lost $220,000 that day alone.
- 2000 Tech Bubble: The burst led to huge declines in many tech stocks, and a 9% decline in 2000, an 11% decline in 2001 and a 22% decline in 2003 for the general market.
- September 11th 2001: The worst terrorist attack on U.S. soil, hitting where the stock market would feel it most. Led to the largest 1 day point decline in history (at the time).
- 2008-2009 “Great Recession”: The worst economic downturn in nearly 80 years for the U.S. Stocks fell over 50%, unemployment reached 10%.
I could go on, you can look back in a history book (Or follow us on Twitter for Facebook to read our “This Day in History” posts) for more…But the point is that the last 30 years have hardly been a breeze. And yet, investing a majority of your savings in stocks has led to 4000% higher returns than keeping a majority in cash.
But Wait, There’s More!
Even More Interesting, what if you actually kept investing during all this madness? What if you started with investing $1,000 right at the top of the market in 2000 and invested $100 each year thereafter until today.
That’s $1,000 to start in 2000, plus an additional $1,500 spread out over the next 15 years. A total of $2,500 saved.
How much money do you think you would have had at the end of 2015?
$4680!
Getting close to doubling your money, despite 2 terrible stock crashes less than a decade apart.
It turns out, market declines have actually been a net benefit for anyone decades away from needing to tap their savings.
So Enough Already
I get it. There is something nerve-racking about seeing your hard earned savings gyrate up and down day to day.
I don’t know how to put it more plainly than this:
Stocks are going to go up and down, and that’s OK. We need to learn to accept that. Because even with one of the worst decades imaginable, long term investors have fared pretty decently.
Still not comforting? I have one other easy solution:
Don’t look at your investments. Set it and forget it.
Don’t just take my word for it. Jack Bogle, the founder of Vanguard has given the same advice many times:
Jack Bogle: And then, you know, I would say, another rule that I use, it’s a little overdone maybe, don’t peek, P-E-E-K. Don’t look at your account every day. Don’t look at your account every month. I tell people if they don’t look at it, they start investing when they’re 22 years old and they don’t peek at their 401(k) statement or IRA statement until they retire, a caution, “Have a good cardiologist next to you.” Because when you open that final statement, you’re allowed to open it at the end, you will probably have a heart attack. You won’t believe how much money you’ve accumulated.
It’s so remarkable what long-term compounding plus, well, the magic of long-term compounding returns without the tyranny of compounding costs is magical mathematics. And if you’re aware of that, that’s really all you need to know.
Because otherwise what is going to happen is that in 30 years we are going to realize that we don’t have enough money to retire like we want to and we are going to have to be overly aggressive with our investments at a time when we really shouldn’t be.
And we can complain that we were all screwed again. Even though it will probably be our fault.
Where Do We Go From Here?
Here at Begin To Invest, we offer a ton of help in getting started investing.
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We also have a series that helps you walk through the process. Check it out by going to part 1 here.