How to invest to build wealth: what 150 years of data say

Most advice on how to invest to build wealth fits on a sticky note: start early, diversify, keep costs low, stay the course. All four are true. What the sticky note leaves out is why they are true, how much each one is worth, and why so many sensible people still don't manage them.

The short answer from 150 years of market data: wealth is built by two things working together. The first is time in the market, letting returns compound for decades. The second is not giving those gains back in the big falls, and above all not selling at the bottom of one. Most investors get the first half. The second half is where most of the damage happens.

This guide puts numbers on both halves, then turns them into three decisions and a plan you can actually keep.

1. The arithmetic of patience

Compounding is the reason long-term investing works, and it is easier to see in numbers than in words.

Regular investing, in one number. €500 a month for 30 years, assuming 7 % a year compounded monthly, grows to about €610,000. Of that, €180,000 is what was paid in. About 70 % of the final amount is growth, not savings.

Time beats amount. Someone who invests €300 a month from age 25 to 65 (40 years) pays in €144,000 and ends with about €787,000, assuming 7 % a year. Starting ten years later, at 35, they pay in €108,000 and end with about €366,000. Ten years of waiting costs more than half the result.

Small differences in return become large differences in money. €100,000 left for 25 years becomes about €685,000 at a constant 8 % a year, and about €483,000 at a constant 6.5 %. The difference, about €200,000, is what the behaviour gap can cost: selling low and buying back high.

How long does it take to build wealth? At 7 % a year, money doubles in about ten years (the rule of 72: 72 ÷ 7 ≈ 10). Twenty years means about four times the starting amount, thirty years about eight times.

These are illustrations with a constant return; real returns vary from year to year, sometimes violently. The free investment calculator tests your own amount and years. That variation is the subject of the next two sections.

2. What history says about the reward

The long-run record of the S&P 500 (the 500 largest US companies) is a line that goes up and to the right, with deep dents along the way. Every fall of the S&P 500 since 1955 was eventually followed by a new high.

The dents are real, and the waits were long. Since 1973 there have been seven bear markets, each a fall of at least 20 % from the previous high, measured on the S&P 500 price index with daily closes:

The bull markets in between were far longer and far larger. Since 1973, bull markets lasted about five to six times longer than bear markets and gained far more than bear markets took. The six completed bull markets gained on average about +259 % and lasted on average about 82 months. Our guide Bear market vs bull market has the full table.

That is the reward: the long-run return is what investors are paid for sitting through the falls. Our free Portfolio Crash Test replays twelve big falls since 1955 on any mix you choose, with the time each one took to recover.

*Past returns do not guarantee future results.*

3. Why the falls are the real problem

If the market always recovered, why doesn't everyone end up wealthy? Because the falls work on two things: the arithmetic and the investor.

The arithmetic. Losses and gains are not symmetric:

The deeper the fall, the harder the climb back. That is why time under water, not only the depth, decides how a fall feels. For any market on TradingView, the free InvestWealth Drawdown Meter shows how far it is below its high and the gain needed to get back.

The investor. Research on how people actually behave shows the pattern behind most damage. Greenwood and Shleifer (2014) found that investors' expectations follow past returns: most optimistic after rises, most pessimistic after falls. That is exactly backwards at the turns. Barber and Odean (2000), studying more than 60,000 household accounts at a large discount broker, found that the households that traded most earned the least. Selling after a fall and buying back after the recovery locks in the loss and misses the rebound.

So the practical question is not "how do I find the best investment?" It is "how do I build a portfolio whose falls I can sit through?"

4. The three decisions that matter more than stock picking

Decision 1: the mix

What you hold together matters more than which single stock you pick. A recent study by Wallberg and Karolin (KTH Stockholm, 2026) tested portfolios a private investor could actually hold: liquid US ETFs, no leverage, monthly trading with costs, 2005–2025. Their clearest finding was about asset selection, not weights: portfolios combining stocks, government bonds and gold did best, and the exact split mattered less than holding all three. An equal-weight mix of the three had a Sharpe ratio (return per unit of risk) of 0.68 against 0.52 for a classic 60/40 portfolio, and a worst fall of 24 % against 30 %. Those are their numbers, backtested and hypothetical, from their paper.

Each part has a job. Stocks are the growth engine. Government bonds have often cushioned stock falls, though not always: when inflation runs high, stocks and bonds have tended to fall together, as in 2022. Our free guide on the stock–bond correlation covers 150 years of that relationship. Gold has behaved differently from both. In the financial crisis it rose while stocks fell by more than half.

Decision 2: the rules for the falls

The second decision is how the portfolio behaves in a long fall. A large body of research, from Moskowitz, Ooi and Pedersen (2012) across 58 markets to Hurst, Ooi and Pedersen (2017) back to 1880, documents trend following: holding markets that are rising and stepping aside from those in long declines. Its value for a private investor is not a higher return in every year. It is fewer and shallower deep falls, which makes a plan easier to keep, and that is the mechanism by which the long-run return actually gets collected. Our free trend-following guide explains how it works and where it fails.

Whatever rule you choose, the point is that it is written down before the fall, not invented during it.

Decision 3: costs

Costs compound exactly the way returns do. €500 a month for 30 years grows to about €610,000 assuming 7 % a year, and to about €502,000 at 6 %, which is the same return minus a 1 % yearly fee. The fee costs about €108,000. Costs come in four layers: fund fees, trading, advice and platforms, and taxes. Each looks small on its own.

*Backtested results are hypothetical. Educational research, not investment advice.*

5. A long-term investing plan you can keep

All of the above only works if it is written down. A plan fits on one page, in five sections:

1. Goals: what the money is for, and when you need it. 2. Risk level: the worst fall you will accept. Name a number, then halve it, and plan with that number. A calm market is a poor guide to how a fall will feel. 3. Allocation: the asset classes and their shares. 4. Rules: what triggers a change, and what never does. 5. Routine: when you look, and what you do when you look. Once a month is enough. Fifteen minutes at month-end beats checking the news every day.

Our free course module, "Why rules beat opinions", walks through each part.

Frequently asked questions

Hamann, H. (2026). How to invest to build wealth: what 150 years of data say. InvestWealth.com. https://www.investwealth.com/learn/guides/how-to-invest-to-build-wealth

<a href="https://www.investwealth.com/learn/guides/how-to-invest-to-build-wealth">How to invest to build wealth: what 150 years of data say</a> (InvestWealth.com)