You’ve probably noticed a lot of big downs in the stock market over the last month (and some nice up days too). Big, fast market drops can be unnerving, especially if you are frequently viewing your 401k balances or other investments you have.
First, with investing and similar to life, do expect a rollercoaster, and while there are no guarantees, if you can stick with it you’ll likely be in a much better spot down the road. Second, know that historically stocks have outperformed bonds and savings accounts and have been key to growing wealth and exceeding inflation over time (that said we do suggest investing in different asset classes to better manage risk):
Three Things to Know About Investing
Here are some good things to know that may provide perspective to help you manage your investments wisely when markets fall:
- There Are No “Losses” Unless You Sell. The reality is, there are no losses unless you sell at a price below the purchase price. Your current value has changed, and it can come back when markets recover.
- Down Markets are Normal and Can Offer Opportunity. Savvy, long-term investors often see a down market as a time to buy low, so they can sell high later. Although past performance is no guarantee of future results, the future opportunities of a down market can far outweigh a drop in your 401k balance today.
- Over the Long-Term, Markets Have Delivered Positive Returns. That’s right, in every 20-year rolling period since 1926 (that’s before the Great Depression), the stock market has positive returns. Ingenuity, new products, inventions, and other variables can help businesses grow and in turn, help spur growth in the stock market over time.
To learn more and see examples of how jumping in and out of the stock market can hurt your returns, how down markets can help you get better returns over the long-term, and how to think about other aspects of investing like how much to invest in stocks versus bonds, please give our more in-depth article on this subject a read: Do I Adjust My 401k When Markets Are Down.