Growing Your Wealth: Why Investing in the Market is Key to Funding Rising Expenses

Imagine it’s the year 2052, it’s a rainy spring day so you decide to take your spouse and your three kids to the movies to see Jurassic Park IV: Rise of the Stegosaurus. Later that week you are reviewing your credit card bill and to your amazement you notice that the movie trip cost over $300!

Sounds a little outlandish right?

Well, maybe not. Let’s take a look at the rate of price increases over the last 30 years for a day out to the movies.

According to figures unveiled by the accounting firm Ernst & Young, the average movie ticket cost $4.14 in 1992. Recently The Cinema Foundation, released an independent annual report, estimating average ticket prices in 2022 to be about $10.53 (from personal experience this seems very low, but maybe I’m going to the wrong theaters, we’ll use this figure anyway). After doing a little percentage change calculation we arrive at the conclusion that over the last 30 years, movie ticket prices have increased over 150%!

If we were to assume steady price increases over the next 30 years this would result in a single ticket costing about $26.33 in 2052, or ~$132 for a family of five.

Now we all know the average person does not simply walk into the theater and sit in their chair without first visiting the grossly overpriced concessions area.

If we assume each member of your family indulges in a large soda, a candy item, and the five of you split a couple of large popcorns, that total can end up being more than the tickets themselves!

Relying on 2022 AMC Concession Prices:

Two Large Popcorns at $9 each = $18

Five Candy items at $4 = $20

Five Large Sodas $6 each = $30

That $68 all-in for the concessions.

If we inflate the concessions at the same 150% price increase, that results in the concession total coming in around $170 in 2052.

We add that figure to the movie tickets ($170 +$132) and voila, $302!!

This day out at the movies is just one example of a larger phenomenon, called inflation. Inflation is the rate at which prices for goods and services rise over time.

So how does one combat inflation to counteract your purchasing power eroding over time?

Well one method, and the focus of this article is by investing in the stock market to help grow your money to fund your longer-term goals.

The stock market has helped create an enormous amount of wealth for disciplined investors over the years. According to the popular personal finance website Nerdwallet, the average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index. Of course, in some years market returns are higher than that, and in some years returns are less than that, or even negative. However, over time, when you zoom out, the long-term trend of the stock market is up and to the right, as illustrated by the chart below.

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But why does this happen? Why does the stock market generally go up over time?

While there are countless variables that influence the stock market in the short-term, in the long-term, the main reason that the stock market goes up is because the economy grows and companies make more money.

It’s important to note that not every individual company will continue to grow over time. That’s why individual stock picking can be much riskier than owning a diversified major asset class, such as stocks, bonds, or real estate in the form of a mutual fund or ETF. In fact, the U.S. Census Bureau reports that only about 0.5% of all companies have what it takes to last 100 years.

This assertion hinges on one simple assumption. The world, over time, will improve, innovate, grow, and will become increasingly more efficient and productive than it was in the past.

The famous financial advisor and author, Nick Murray has a great quote, “over the short-term the market is unknowable, over the long-term it is inevitable”. And it’s so true. This chart below does a great job illustrating that statement.

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Over any given 1-yr period the dispersion of returns are quite wide, but the longer your time horizon, the more conviction you can have that a diversified portfolio should provide a positive return.

I can’t tell you if the next 10% move in the market will be down or up, but I can tell you with reasonable certainty that the next 100% move will be up. And getting the next 10% move wrong is not going to be what derails you from reaching your long-term goals, it will be missing out on the next 100% move while you wait for the “bad news” to pass. Whenever someone says to me “I’ll buy back in when the coast is clear” what I hear is, “I’ll buy back in when prices are much higher”. Risk and return are tethered at the hip. When things look the darkest, that's often been a good time for an investor to put funds to work.

This graphic brings us back to the title of this article. Why Investing in the Market is Key to Funding Rising Expenses. In my opinion, the purpose of investing is in order to grow your money over time in order to fund your ideal lifestyle expense profile in the future. NOT to try to make a quick buck, or time the market in order to fund a short-term goal. Said in another way, we save and invest, so that we may spend later.

The importance of investing is in an attempt to grow your money over time, because if history is of any reliance I can say confidently your expenses will rise over time. Said simply, your basket of goods and services will experience inflation. Inflation is what results in the reduction of your purchasing power. Just look at the chart below of what has happened to the purchasing power of the dollar over the last century. 

So how do we counteract this economic phenomenon?

How do we hedge this loss of purchasing power of the dollar? 

By investing in the capitalist world economy in a diversified manner so we can own a piece of all these great companies. Participating in this appreciation can give you a great chance to be able to generate a reliable income stream in retirement from your portfolio to fund your expense profile.

So, if you would like to always be able to take your kids or grandkids out to catch the latest dinosaur or marvel film, you may consider getting serious about developing an automated savings and intentional investing game plan that you are comfortable with and can stick to for the long-run.

To learn more, visit my website at impactfinanciallifeplanning.com, email me at john@impactfinanciallifeplanning.com or call 410-570-8597.

To schedule a complimentary call, please grab some time on my calendar: https://calendly.com/johnocallaghan/consultation