A grandfather was recounting an amusing moment with his young granddaughter. They were getting into a minivan and, as the granddaughter inserted her favourite DVD; she asked granddad what sort of DVDs he watched in the car when he was six years old.

When he told the youngster that there were no DVDs, certainly no cars capable of playing them, and television had yet to be invented when he was six – he was met with a simple stare of incomprehension. Then the six year old went back to selecting her favourite scene on the remote control.

I relate this story because it’s almost impossible for us to grasp the enormous progress that mankind has made over the past 50 years. The diseases that threatened children and adults alike 50 years ago have mostly been wiped out in the developed world. We have technology at our finger tips that, even 20 years ago, would have had NASA in a swoon.

It’s also almost impossible to imagine the wealth creation that has occurred in the stock markets over the last 50 years. To give an example, the S&P 500 stock index, on October 1st 1959, stood at 59.89 points. As I write this column (September 15, 2009 the S&P 500 stands at 1053 points). That’s a pretty good run, but it doesn’t include dividends. If an investor were to reinvest the dividends paid out by the stocks in the index, the wealth creation would be a multiple of the 17 fold increase in the index.

Today there is a lot of pessimism. We are just starting to work our way out the other side of one of the worst bear markets in history. Comparisons to the great depression abound and, implicit in the fear and the pessimism that rules the day, is the notion that there will be no further progress. We have had the good times, now comes the permanent hangover.

Like most hangovers, they rarely seem to end quickly enough. But the markets and progress will march on. The two are tied together through the economy, which has also grown and will continue to grow in the face of relentless progress.

In the modern age, every generation lives longer than the previous generation. It was only a hundred years ago that you were lucky to make it past 50. We tend presume that our experience in the future will be much as it is today. It’s human nature to extrapolate whatever is happening today into the future. But as the little girl at the start of this story shows us, progress creeps up on us and things that were once impossible become as routine as morning coffee.

If you can remember the leap from no television to playing your favourite DVD in the back seat, it’s not hard to conclude that a lot of our problems to day will be solved by innovation we have yet to experience. Innovation will spark growth, growth reflects in the economy and the economy moves the stock market. It is not about if this will all happen – it’s merely a question of when.

What happens in the next few years to capital markets is anybody’s guess. But portfolios are usually built to fund long term liabilities such as retirement. As both progress and the S&P 500 tell us, growth is inevitable. In spite of recent experience and the uncertainty of today – stocks remain one of the best possible assets to fund the expenses of a long lifetime.

Alan MacDonald is an investment advisor with Richardson Partners Financial Limited. Alan helps investors with over $500,000. of assets make smart decisions about money. For more information please visit www.alanmacdonald.ca or email Alan at Alan.Macdonald@RichardsonGMP.com.

Richardson Partners Financial Limited is a member of CIPF.

Since the darkest days of recent market pain in late 2008 and early 2009, stocks have rallied significantly. In spite of this market correction, though, most investors still have a long way to go to get back to where they were.

Our current economic crisis has been compared to the Great Depression of the 1930s so many times that it’s tempting to believe this might actually be true. Don’t be fooled; it’s not. The way economists measure recessions and depressions is by the decline in gross domestic product (GDP). The Dirty Thirties saw the U.S. GDP decline by almost a third, some 30%.

Let’s put that into context. Since World War II, there have been about ten recessions. The average decline in GDP, from peak to trough, was 1.7%. This current recession is perhaps a little worse than the average, and will likely see a decline of about 2%. This tells you that any comparison to the Great Depression is unfounded: there’s a vast gulf between a 2% and a 30% decline. Granted, we’re in the worst recession since 1982 – but that’s it.

One thing the media have got right, though, is our reaction to market declines. When markets begin to drop, investors pull out their money to avoid further losses; and then each wave of selling sparks further selling. Declines tend to feed on themselves, in a descending spiral of pessimism.

And what do investors usually do with all that cash they pull out of the market? They generally move it to a safe vehicle, such as a money-market fund. Money market balances commonly peak at market troughs, and are lowest when markets are strong.

A good example from the records is 1982. On September 19, 1982, just before that bear market ended, money-market funds represented a value of 19% of the total value of the stock market in the U.S. And look at October 2002, in the dying days of the last major bear market. Then, money-market funds stood at 30% of total market capitalization.

And at the end of 2008, when fears of economic disaster reached their zenith, that figure went up to a remarkable 45%. Granted, since then some of this cash hoard has worked its way back into the capital markets. Today, money market funds equal 34% of market cap. Overall, investors remain cautious, largely content to wait on the sidelines and watch for evidence of a serious turnaround. That kind of wait-and-see liquidity is certainly consistent with the historical symptoms of the end of a bear market.

This river of money market liquidity is blocked by a dam of investor fear. Although the fear is real and well-founded, eventually the dam will give way – as it has in all previous bear markets. And when those huge amounts of cash are released, the markets soar.

There has rarely been more cash behind the dam than there is today. Most of it is looking for a way out. For investors in cash waiting for the “right” time – that right time is before the dam gives way.

Alan MacDonald is an investment advisor with Richardson Partners Financial Limited. Alan helps investors with over $500,000. of assets make smart decisions about money. For more information please visit www.alanmacdonald.ca or email Alan at Alan.Macdonald@RichardsonGMP.com.

Richardson Partners Financial Limited is a member of CIPF.

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