The investment landscape has undergone a remarkable transformation since 1979, driven largely by technological advancements. Back then, soaring inflation and an oil embargo created economic turmoil, with the inflation-adjusted GDP of the United States at approximately $6.97 trillion. Today, just the combined market capitalization of Microsoft and Apple stands close to $6.94 trillion, illustrating the significant evolution in wealth creation and investment dynamics.
In 1979, interest rates soared due to actions taken by Paul Volcker at the Federal Reserve, making home ownership increasingly unattainable. At the same time, the S&P 500 index had just peaked at 108 before it was cut nearly in half. This era was marked by geopolitical challenges, including the Vietnam War and the Arab Oil Embargo, which spurred a sense of economic malaise.
Yet, amidst this uncertainty, groundbreaking innovations began to emerge. The introduction of the microprocessor by Intel in 1971 set the stage for a technological revolution. In 1975, two young entrepreneurs, Bill Gates and Paul Allen, founded Microsoft. Shortly after, Steve Jobs and Steve Wozniak established Apple in a garage, and Nvidia was founded in 1993, focusing on specialized graphics processors for gaming.
These companies have since become financial powerhouses, collectively contributing nearly 2.5% of the entire U.S. economic output. To put this into perspective, the S&P 500 has soared from 108 in 1979 to approximately 6,300 today, reflecting a staggering 58-fold increase. If an investor had put $10,000 into an S&P 500 index fund in 1979, it would be worth around $1.6 million today, excluding taxes.
The narrative surrounding investment often focuses on immediate headlines and market fluctuations, but sustainable innovation tends to develop quietly over time. Historically, successful investors have demonstrated patience, recognizing that genuine progress does not always align with the latest news cycle.
Investors who remained steadfast during the economic struggles of the 1970s eventually witnessed a turnaround. Volcker’s measures successfully curtailed inflation, and advancements in energy production—especially in shale and fracking technologies—led to U.S. energy independence. The subsequent recovery of the equity markets showcased a shift from fear to opportunity.
Reflecting on the past reveals the potential for future growth. The notion that companies founded today could one day surpass the economic output of entire nations may seem far-fetched, but history has shown that innovation often defies expectations. As investors, it is critical to maintain optimism about future possibilities, regardless of current challenges.
The core of successful investing lies in a belief in human ingenuity. While setbacks are inevitable, they do not diminish the potential for a brighter future. It is conceivable that future generations will compare today’s GDP to the valuation of new companies emerging from garages and small offices around the world. Therefore, it is essential not to let fear deter investments in innovative ventures.
Steve Booren, founder of Prosperion Financial Advisors in Greenwood Village, emphasizes the importance of understanding these dynamics. He is the author of “Blind Spots: The Mental Mistakes Investors Make” and “Intelligent Investing: Your Guide to a Growing Retirement Income.” Recognized by Forbes as a 2024 Best-in-State Wealth Advisor and by Barron’s as a 2024 Top Advisor by State, Booren advocates for a long-term perspective in investment strategies.
