A Qualitative and Quantitative Look at the Value of Being Invested

March 11, 2024

The simplest way to look at the value of investing your dollars is to consider inflation. Over time, inflation will reduce the value of your dollar. Investing your money protects you from some of this inflationary risk. Investing, however, doesn’t come without its own risk. In fact, it’s relevant to note that all investing is subject to risk, including losing money. Participating in the market opens the door to market risk, financial risk, business risk, and many other types of risk. For years, investors have been  fearful of these risks and fearful of volatile market conditions and they’ve pulled their money out of the market completely-and for years they have been wrong. Saving money in a checking or savings account is valuable because your money will be safe and easy to access should you need it in case of an emergency. But if you hold all your money in cash, you’re well over exposed to inflation risk and some analysts hold this akin to throwing a percentage of your monthly paycheck into the trashcan.

The most recent Survey of Consumer Finances1  published by the Federal Reserve Board revealed that 58% of Americans were participating in the market through direct or indirect holdings in 2022. The Fed runs this survey every three years- that number was up from 53% in 2019 and 52% in 2016. First, it's great that market participation is increasing but let’s be very clear: 42% of Americans in 2022 were virtually burning money by not investing in financial assets. You worked for your money; investing is a way to make it work for you. Some of the increase in market participation can likely be attributed to investing becoming more accessible. With a growing number of managed account providers and a growing demand for personalization in the investment space, more new investors are able to start putting their money to work.

The average annualized return of the S&P 500 from 1927 through 2023 was 9.56%%.2  The average annualized inflation rate of the U.S dollar from 1929 through 2023was 3.19% from annual Consumer Price Index data.3  That is, the S&P 500 Index is beating inflation at an average of 6.37% year over year from 1929 through 2023. So, not only would an investor avoid losing money because of the devaluing of currency, but they would have grown their money at an inflation adjusted 6.37% per year! So, in an attempt to quantify the value of being invested, nearly 100 years of data show that you’re  generally 6.3% better off exposing yourself to market risks than lending yourself completely to inflationary risks. In that, the risk of inflation is a systemic risk that is nearly guaranteed, while many risks encountered in the market can be diversified away.

Tired of torching your hard-earned dollars in the flames of inflation? Good, you have effectively grasped the concept of this very clear article. Unsure of how to start investing or what to do next? There are a number of ways to begin investing. Contributing to your employer’s 401(k) is one of the most common ways for new investors to begin investing. To start saving for financial goals that don’t center around retirement you could consider a managed account. No matter where you start your investment journey, bear in mind that your financial goals and time horizons are specific to you and you may find it useful to use a personalized managed account service as an investment scheme crafted to your personal situation  may  increase your market-earning potential.

Hazel Allen
OPS Analyst

 1https://www.federalreserve.gov/publications/files/scf23.pdf(Opens to PDF)
 Published October 2023; Accessed January 9, 2024


  3https://www.bls.gov/cpi/tables/historical-cpi-u-201711.pdf(Opens to PDF)
  Accessed January 9, 2024

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The Consumer Price Index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.