Investing in the Stock Market – Simplified

If you've ever wondered why seasoned investors tell you to stay the course, it's because history has taught us something simple yet profound. Time in the market beats timing the market. Investing isn't just about stocks going up and down on a chart. It's about preserving your purchasing power, compounding your money, and building resilience against life's financial curveballs. So in this episode, I'm going to take you on a journey from the magic of compound interest to the harsh reality of inflation, to how the stock market has historically rewarded patience even through things like wars, recessions, and crises.

Hello everyone, and welcome to the Retiredish podcast. In today's episode, I'm going to take a step back and go over more of the basics and fundamentals of investing in the markets. Specifically, the public stock markets where we can buy things like stocks or even bonds, et cetera. The reason I want to do that is because I think a lot of these fundamentals get lost in the day-to-day shuffle of the financial media. You know, especially if you're watching TV shows on CNBC or what have you, or you wake up and the first thing in the morning is you check out your stock app or Yahoo Finance or Market Watch or something like that. We're always worried about what's going on today and what companies are the hot stocks. And that's sort of how people are beginning to make their investment decisions without going over or tackling the fundamentals first.

[00:02:02]
So that's really what I want to tackle today. I want this episode to serve as a primer for investing in the broad markets. Whether you're nearing retirement and you have experience investing in the market, maybe in your 401(k) or brokerage account, or no investing experience at all in the markets. Or maybe you're in retirement and you're managing your own investments. Maybe you received an inheritance of money that is somehow invested in or tied to the markets in some fashion, and you're wondering how to approach investing moving forward. I want this to be kind of an educational episode on how you should think about investing in markets when aiming to preserve wealth by maintaining your purchasing power over and above inflation and combating the effects of taxes, or trying to build significant wealth in the long term for unexpected expenses or for a legacy for your spouse and your other heirs.

This isn't going to be an episode about what kind of account do I open and where do I open it, and what exactly do I buy. Regardless of the goal you're investing for, the point of this episode is to help you understand how to approach investing in the public markets so that hopefully you can have better expectations along your investing journey.

First, let's go over the foundation, which is compound interest and inflation. Now, you might think that this is a relatively basic topic, but I will tell you, most people have a misunderstanding of one or both of these things, so I just want to quickly recap the power of compound interest and the effects of inflation over time. Compound interest over a long period of time is how significant wealth can be created, especially in the markets. One of the ways we can take advantage of compound interest is by investing continuously over time.

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Albert Einstein once called compound interest the eighth wonder of the world, and he wasn't kidding. Let me give you a very powerful example that illustrates this perfectly. Let's say you were lucky enough to find a magic penny that doubled in value every day for just 30 days. By day eighteen, you'd have over $1,000. By day twenty-seven, you'd have over $670,000. And just three days later, by day thirty, you'd have more than five million dollars.

That's the staggering power of compounding. Don't believe me? I welcome you to try and do the math yourself. Let's pair that with the flip side, which is inflation. And inflation works against you, not for you. Over time, inflation quietly eats away at the purchasing power of your money. For example, $10 in the year 1983 bought only $3.10 worth of goods today.

The lesson here is that simply holding on to cash and not investing over the long run will cause you to lose money. Now, not technically, since your bank account balance, for example, will stay roughly the same if you don't spend it. But that money won't be able to buy what it used to. This makes strategic investing over a lifetime so critical just to be able to preserve your wealth you may have already accumulated, let alone trying to grow it. So again, compounding works in your favor, while inflation works against you. The real question is, which side do you want to be on? More importantly, based on your investment plan, which side are you currently on? Here's where the data hits really hard. From 1950 to August 18th of 2025, the S&P 500, which represents the near 500 largest publicly traded companies, aka stocks in the United States, has grown $100 into more than $2,800 after inflation.

[00:06:16]
Meanwhile, $100 stuffed under the mattress or locked in the safe has deteriorated to just $7 of purchasing power today. What I want you to realize here is that not investing feels safe because you're not seeing the value of your investment go up and down every day. But the reality is it's one of the riskiest decisions you can make, especially during retirement, and that is primarily due to inflation and taxes.

Now, I challenge you to rethink most of what you know about investing or what you think you know about investing. Most humans, by nature, want large returns. They want them as fast as possible, and they want to take little risk. They would prefer to get rich quick, basically. This is why time and time again, people chase the most recent hot investments and engage in investment behaviors that have the potential for these exuberant returns in such a short period of time. The issue with that is that in order to get these potential exuberant returns, you have to take on large amounts of risk and volatility. Because of the increased volatility, it may be harder to obtain the true power of compounding.

So let me give you a simplified example of what I mean here. If someone gave you the opportunity to earn 80% on your money in just one year, and I think we can all agree that would be an exuberant return in a short period of time, or you could earn 8% on average over the next 10 years, what would you take?

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At first, you'd probably want the 80% return in the one year because the number looks bigger, it sounds better, and you make the money faster. So you could also think about all the ways you can use that money right away. However, that's sort of a siren song. Because on the other hand, an 8% average return on over ten years sounds like a really long time. And it is. It also sounds like a very small return. It's single digits compared to high double digits. However, if you were to earn 8% over ten years on your investment, that's ten years of compounding. The power of that compounding will actually leave you with much more than if you were to just receive a one-time 80% return. So the lesson here is that if you set a goal, figure out what rate of return you need on average each year to achieve that goal in the given time frame, that you have to invest in a way that takes the least amount of risk necessary to reach that goal. Simply getting average returns over a long period of time will often dwarf your friend that occasionally knocks it out of the park with their highly volatile, risk-laden investment. This is all thanks to the power of compounding. And while I'm not going in on a deep dive about taxes and how they will also reduce your spending, power, and wealth over time, keep in mind that the effect of taxes is very real when investing, and a lack of good tax planning can significantly reduce the probability of success in meeting your various financial goals. Your investment returns after taxes are paid are all that matter since that's what you actually get to spend at the end of the day.

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All right, so now that we have a good understanding of the primary reasons of why we would even consider investing in the markets, let's look at a long-term historical view of the markets to get a better perspective. So let's zoom out for a moment. The history of the S&P 500 and alternative versions of it can be traced back to the 1920s. And sure, it's gone through some really serious economic crises and changes, such as the Great Depression, several wars, world wars, presidents, the dot-com bubble in the early 2000s, the financial crisis, the COVID-19 pandemic, etc. And it will continue to. But each one of these events was eventually followed by very strong market recoveries, which have historically contributed to the overall upward trajectory of the market over a long period of time.

There is actually a very distinct reason for this, and that is because the world, and in fact the United States alone, has grown over time. Society has benefited from continuous innovation, and that innovation comes from real companies. And we are able to invest in most of these companies through the public stock market. When these companies innovate and change the world and provide us with new and different products and services, a little thing called gross domestic product, or GDP, tends to increase over time.

To help you understand this, in the United States, real gross domestic product or real GDP measures the total value of goods and services produced in the United States economy. Or, in fact, you can take this measure of any economy if you want, and it's adjusted for inflation to reflect the true value of economic output over time. And when we look at recent trends in US real GDP, as of the most recent data points, total US real GDP was around $23.69 trillion.

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Now, back in the 1950s, it was under $5 trillion. So, real GDP going back to 1950 reveals the cyclical nature of the US economy. There are periods of growth, and there are periods of stagnation where we kind of don't go anywhere. And there's surely periods where GDP declines, but still the long-term trajectory has been higher over the long run. And if you were to look at a chart of this again over a long period of time, it would go up to the right, similar to charts of the associated stock market.

This is why discipline matters. If you zoom in too much and only look at what's been happening recently, all you see is noise, a lot of up and down, and craziness. Zoom out and you see progress. While short-term market movements can be unpredictable and unsettling, they have historically been temporary in the broader context of long-term growth. Now, I also want to mention the fact that historically, the odds of gains in the value of stocks have increased the longer you're invested in them or the longer you're holding them, and so have the returns. So I will include some charts in the episode's show notes to help illustrate this phenomenon. So be sure to check that out in today's episode description.

For instance, since 1950, the average gain of the S&P 500 invested over just a one-year time frame was about 9%. Again, that's average. If your holding period was, let's say, five years, the average gain was 50%. And if we bump that up to 10 years, it's over 100% and over 20 years, it's been over 300%.

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As you can probably tell, this is again because of the power of compound interest over long periods of time. Of course, there is no guarantee that these exact trends will continue to. But the beauty of the public markets versus other types of investments is that we have a lot of historical data over many, many years, and that data has remained fairly consistent over time.

Now let's talk about bulls and bears. And no, not actual bulls and bears, but in terms of the markets, you see markets move in cycles, and bull markets are periods of rising stock prices.
In other words, the values of these publicly traded companies are going up. And bull markets typically bring substantial gains. For instance, the current bull market, which started in October of 2022, is now more than midway through 2025 and is already up about 80%. But then there are what are called bear markets, which are essentially declines of 20% or more from a high point, which, if you haven't been through one before, they feel very scary while you're going through them. There have been several that were much more than just 20% declines, I might add. And since 1956, bear markets have only lasted on average just over a year. Some were very short-lived and others were a bit longer, but on average, they lasted about a year.

While you're experiencing one of these bear markets, it is painful, and you will very likely begin to question how you're investing. Sometimes rightfully so. Many people decide to completely adjust their risk tolerance and what they're investing in moving forward. And that could be for better or worse. This is where not having a financial plan can get really dangerous. Because you have no plans for what to do when one of these bear markets happens.
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There are different strategies that you can implement and adjustments you can make, besides just sitting there and writing it out or hitting the easy button and getting out of the market completely. Rebalancing Roth conversions and tax loss harvesting are a few of those things. Are these bear markets permanent? So far, the answer is no. And again, the reason for this goes back to the continuous long-term innovation and improvement of our world. History shows that these bear markets have always given way to the next bull.

But here's a twist. The longer your holding period or your investment period, so again, the longer you're invested in the markets, the greater the odds you'll experience at least one bear market. However, be prepared to experience multiple. Therefore, while long-term investing is often associated with potential growth, it also increases the likelihood of experiencing periods of significant declines. And these events have occurred regularly throughout all of the market's history.

So, to put this in perspective. Since 1950, if you had been invested over any 10-year period, the likelihood of you experiencing a 20 plus percent decline has been roughly 95%. So those are pretty high odds. Over any 15-year period, you would have in fact experienced at least one bear market. So, so far it's been 100%. And that's not necessarily bad news, it's just reality. The market isn't always a smooth ride. It can feel like a rollercoaster in the short term.

Okay, we can't talk about investing without also discussing risk and market volatility, which is one of the most, if not the most important things to understand when investing.

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We've already discussed the risk of not investing at all, right when we were talking about inflation eating away at the money sitting in your bank account. But now let's get into how risk works when you are investing. And that being said, I want you to take a moment to disconnect the terms risk and volatility, because they aren't necessarily the same thing, at least in this context. Volatility in this sense is the price of admission for long-term returns. That's one way to think about it. Since 1950, the S&P 500 has seen more than seventy market declines of at least 5%, twenty-six declines of 10%, and even multiple 30 to 50% declines. And as we've already discussed, it has seen extended periods of significant gains as well. So volatility is both the ups and the downs.

Here's what surprises most people. Even if you had the worst luck imaginable and only invested at the top of the market since 1950, meaning you invested right when the S&P 500 was worth the most it's ever been, at that time, your average annualized return would still be about 8 ½%. Or let's flip that around. What if you tried to time the market by getting in and out when times are good and bad? Well, a single dollar invested in 1950 grows to $387 as of August 18th of 2025, if you stayed invested the entire time. But if you missed only the best 100 days over that entire time, that dollar shrinks to just $5. And the reason for this is that the days that have provided the best returns often follow directly some of the worst days. This is the natural volatility of the market.
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Now, the term risk, on the other hand, in the context of investing, should be primarily viewed as how you're choosing to invest to meet your specific goals. I hinted at this earlier. For instance, if you're about to retire and start living directly off of your retirement savings and your money in the market, there's a chance that the market drops significantly right before or after you retire and begin withdrawing money. And now your retirement income is at risk. This is also known as sequence of returns risk, which we have discussed many times in previous episodes. On the other hand, if you're not invested at all or not enough, you also run the risk of running out of money too fast, right, because of inflation and taxes along the way. Also, not to mention unexpected large expenses in the future that will knock down your portfolio balance even more, again jeopardizing the longevity of your retirement income. They are both risks.

This leads me to the next most important concept in investing in the broader markets, which is asset allocation and diversification. Essentially, this is how you manage the risk that you're taking. Asset allocation is the mix of stocks, bonds, real estate, and more that you have in your various portfolios for your different financial goals. It's your first line of defense, essentially. For example, a portfolio that's 80% in stocks will experience more frequent 10% declines than one that's, let's say, 40% in stocks. Now, diversification adds another layer.

For example, in 2025 alone, a simple diversified portfolio with with 30% in large cap stocks in the United States, 10% in United States small cap stocks, 15% in international stocks, 5% emerging markets, 25% in bonds, 5% in real estate investment trusts or REITs, and let's say 5% in commodities and 5% in cash has returned about 9.3% up until August 18th of 2025.

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Here's the key. Diversification isn't about chasing the top performer. It's about smoothing the ride, AKA the volatility, like we talked about earlier, so you can stay invested through the rough patches. While it doesn't ensure a profit or protect against losses, spreading investments across the different asset classes may help manage risk and reduce that volatility over time. When one asset class is getting hammered, there should be others that aren't down as much, or maybe they're flat and haven't really returned anything over a specific period of time. Or hopefully you have others that have actually gone up in value, while others are going down. Historically, more aggressive stock allocations have resulted in more frequent pullbacks or declines versus portfolios that have a heavier concentration in asset classes such as bonds.

However, if you were to be invested primarily in stocks, by accepting that higher level of volatility, you gave yourself the opportunity to experience greater returns. So that being said, your asset allocation and the way you diversify are dictated by your investment goals and your financial plan. If you require a certain rate of return to achieve a particular goal, you may need to have a different asset allocation than your coworker, who has a completely different set of goals. Hopefully that makes sense.

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And by the way, on a side note, although I have been referencing the S&P 500 when talking about the stock market, I'm not saying that if you're going to invest in the stock market that you should only be invested in something that mimics the return of the S&P 500. There are many more nuances to how any particular person should invest and diversify.

One last yet very important note, while I'm on the topic of the S&P 500, I want to talk about how it looks today, and we're recording this as of August of 2025. As of mid-2025, just seven companies, the so-called MAG7, are worth the same as the bottom 433 companies in the S&P 500 combined. And yes, you may have noticed that there are not exactly 500 companies in the index. Go figure. While the MAG7 average each company averages 2.7 trillion in value, the bottom 433 stocks average just 43 billion in value. So that's how we get to roughly the 18 trillion that the top seven are worth versus the other 433. That level of concentration in so few companies means that the index returns can be heavily skewed by just a handful of names. It's a reminder that broad stock index performance can mask what's actually happening beneath the surface. And this is why proper portfolio diversification still matters more than ever. You might think that because you are indexing to the S&P 500, or you own an investment that mimics the S&P 500. ‘Hey, I own 500 or so different companies. I'm really diversified.’ When in actuality, you might not be diversified whatsoever.

[00:26:01]
So the stock market isn't about predicting the next headline. It's about building a strategy that acknowledges risk, embraces time, and takes advantage of the power of compounding. Because in the end, investing isn't about trying to be right every day. It's about building wealth over decades.

Let's end with some key things that I want you to take away from today's episode. Number one is that inflation erodes the purchasing power of your money, even if your account balances aren't moving. And this doesn't just stop when you hit retirement. Many people think that, ‘hey, once I hit retirement and I've accumulated this wealth, I need to completely back off on all risk-taking just to make sure my money's safe and secure.’ But they forget that inflation is still going and it's going to go all the way until you die. So you can't just give up on all risk-taking.

Number two, managing your taxes efficiently can help improve your lifetime returns. And this is because after tax returns are all that matters since this is the money you actually get to spend.

Number three, compounding is extremely powerful, especially over long periods of time, and the longer the time frame, the more powerful it gets.

Number four, the stock market rewards patience, not perfection. Average returns over longer periods of time can produce better long-term returns than aiming for significantly above-average returns.

Number five, market declines will happen. Be prepared for them. Have a plan to better your financial situation when they do.

Number six, Diversification helps you weather the inevitable, yet historically always temporary storms.

[00:28:00]
Number seven, a financial plan that is actually implemented can help you dictate how you should be investing for your goals, not the other way around. Don't let random investment returns decide the entire outcome of your retirement.

That's a wrap for this week's episode. If you haven't already, subscribe to and follow the show on your podcast app. That way, you can get alerted each time. A new episode drops every two weeks. And if you want a second opinion on your own financial plan or your portfolio and how you're diversified, visit our website@planablewealth.com and schedule a discovery call to see if you're a good fit for our free Tax Optimized Retirement Playbook. Also, be sure to check out our free monthly newsletter to get more useful information on retirement planning, investments, and taxes once a month straight to your inbox. Oftentimes in the newsletter, we dive deeper into some of the topics discussed on the show, as well as provide some useful guides and charts available for download.

As always, you can find the links to the resources we have provided in the episode description right there on your podcast app. Or you can head over to retiredishpodcast.com/77. Thanks again for tuning in and following along. See you next time on retiredish.

[00:29:40] Disclosure

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Cameron Valadez is a registered representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

Neither LPL Financial nor its registered representatives offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness.

This is not a recommendation or offer of any financial product. All performance referenced is historical and is no guarantee of future results.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The S&P 500 is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results. All investing involves risk including loss of principal.

No strategy assures success or protects against loss.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise.

Bonds are subject to availability, change in price, call features and credit risk. Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Tax and accounting related services offered through Plan-It Business Services DBA Planable Wealth. Plan-It Business Services is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax and accounting related services.