Investing can be intimidating; therefore, individuals often spend quite a bit of time and research making sure they make good decisions before opening up their pocketbook. But, it is also easy to make investment decisions quick and largely based off of emotions. With that in mind, here are some stock market facts that can help put your mind at ease when panic is on the rise.
There have been 18 economic recessions in the past 100 years.
This means that for every one year of decline, there have been five and a half years of growth, and there have only been two recessions in the past ten years, making the more recent average one every ten years. While that statistic can help put your mind at ease, it is also important to remember that pulling your money out during a fall and putting it back in during a rise would likely cause a loss of funds.
Diversified portfolios are more likely to handle risk well.
The stock market has many different types of investments. Some do well when it is rising, and some do well when it is falling, and some fluctuate regardless of how the market is doing. If you have a balanced portfolio, the investments that are getting a return on are likely going to compensate for the investments that are losing money. It’s like baseball; I would rather aim for a double, than to strike out hitting for a home run. What you are getting in lower risk, you are giving up in potential return in high risk investments.
Staying in the market means you will benefit from the growth.
Investopedia’s Dan Moskowitz theorizes what would happen if someone invested $10,000 in the stock market at the bottom of the 2008 financial crisis and held them for the next ten years. With his calculations, here are the estimates of growth based on choosing between these three popular indexes.
S&P 500- $10,000 à $42,638
DJIA- $10,000 à $40,333
Nasdaq- $10,000 à $60,231
Of course hindsight is 20/20, so he is not suggesting that you save up specifically for the next recession. Instead, he is showing that when you may lose value today through investing, keeping your funds in the investment may result in significant growth during the years that follow the recession.
Finally, don’t forget…
While these aren’t the only ideas to consider during the investing process, remember, you likely invested the money thinking long term, so why change your philosophy when world events cause the market to swing?
Best of luck!