A recent MFS survey found 40% of people between age 18 and 30 agreed with the statement, "I will never feel comfortable investing in the stock market."  

Can you blame them? In a way, yes. If these folks stick true to their word, the vast majority will struggle to reach retirement. Favoring cash that returns less than inflation while refusing to touch stocks, many trading near their lowest valuations ever, is financial self-destruction -- particularly for young investors who have decades before retirement.

On the other hand, it's been a zoo lately. The average day in August saw the Dow Jones (INDEX: ^DJI) go either up or down 1.94%. Over the past 30 years, that number has averaged 0.76%. Viewed another way, out of the 360 months in the past 30 years, August was the sixth wildest:


Sources: Yahoo! Finance and author's calculations.

This scares people silly. If you've been lulled into thinking that stocks return 7% to 9% a year (or whatever they teach in school these days), watching a blowout like August makes you wonder whether you've been tricked.

This is especially true since markets have effectively gone nowhere for the past decade (although returns are positive when dividends are factored in). If stocks are supposed to provide good returns, and the past decade has been a flat line, and the past month was an utter crapshoot, then why should you invest ever again? I think that's the attitude many in the MFS survey hold.

But there are reasonable explanations for all of it. Stocks have logged dismal returns over the past decade because that period's starting point is the dot-com bubble. Interestingly, people seem to get this when you flip the scenario around. Whenever I point out that the best time in history to buy stocks was 1933, someone always fires back that, "Well, duh. That was the bottom of the Great Depression." And, well, duh, 2000 was the peak of the Great Bubble. If you use 1995 as a start date instead of 2000, stocks have returned more than 9% a year for the past 16 years. Not bad. 

There's more to the frustration than that, of course. Investors have been told -- nearly assured -- that broad stock market averages return 7% to 9% a year. You read this in textbooks. You hear it from financial advisors. It's been engrained in investors' minds as an expectation benchmark. Own stocks, expect 7% to 9% a year.

But as my colleague Alex Dumortier recently wrote, "The expected return isn't the return you should expect."

This isn't as crazy as it sounds. Over very long periods of time, stocks will earn respectable returns of 7% to 9% a year. But among individual years -- even decades -- those returns will be all over the map.

Going back to 1928, annual stock returns have spent very little time around the 7%-9% range. While the average annual return indeed works out to 7%, most years are either well above, or well below, that level:

Annual Return

Number of Years the Dow Has Returned This Much Since 1928

Less than -50% 1
-50% to -30% 3
-30% to -20% 2
-20% to -10% 10
-10% to 0% 12
0% to 10% 14
10% to 20% 21
20% to 30% 13
30% to 40% 4
40% to 60% 1
More than 60% 1

Sources: Yahoo! Finance and author's calculations.

Out of 82 years, just 14 have fallen into the range that many investors expect to earn. The other 83% of the time, stocks were in some sort of wild bull or bear cycle.

This is simple stuff that most investors know in the backs of their heads, but it drives home a vital point that too often goes ignored: Building wealth -- the kind of wealth you can really count on over time -- can take glacial levels of patience. That isn't anything new. It's worked this way for centuries. Over a lifetime, you'll be tempted by incredible up years, and frustrated by agonizing down years. The trick is learning that the former doesn't mean you're a genius, and the latter doesn't mean you're being duped. Both are just what markets do. And both have to be accepted if you want to earn those magical 7% to 9% annual returns over time that we've come to expect.

Whether vowing to avoid stocks forever is rational depends on how you look at stocks. If you view them as something that should produce stable, steady returns without much volatility -- even occasional bouts of extreme volatility -- then avoiding them might be wise. Warren Buffett once said that unless you can watch your stocks fall 50% without becoming panic-stricken, you shouldn't be investing.

If, however, you accept that putting up with volatility is what allows stocks to be the greatest wealth generator out of any asset class over long periods of time, then recent experiences shouldn't change anything. Investing still makes sense. It just isn't for wusses.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.