Observing the unpredictable fluctuations in the stock market can be a source of concern, particularly when you are approaching your retirement years. It becomes challenging to witness the highs and lows without feeling lost. However, panicking is not the ideal response, as it can lead to impulsive choices that could potentially hinder your portfolio’s capacity to rebound from downturns.
Instead of allowing fear to dictate your actions, it might be prudent to take a step back and reassess the situation alongside your financial advisor.
By doing so, you can explore the possibility of implementing necessary modifications that align with your current risk tolerance and overarching financial objectives.
Here are 7 reasons why you shouldn’t worry about the stock market.
1. The market has always rebounded
While it’s important to manage your expectations, it’s crucial to recognize that significant market gains are unlikely to materialize instantly. However, historical data provides reassurance that the stock market has consistently recovered from downturns in the past.
Over the long term, the stock market has demonstrated positive returns. By maintaining a steadfast approach and holding onto your investments, you increase the likelihood of achieving stability in your portfolio.
For instance, according to data spanning back to 1926 reveals that the U.S. stock market has yielded positive returns in 95% of the cases over a 10-year period. Furthermore, when considering a 20-year timeframe, it has demonstrated positive returns in every single instance.
It’s important to note that past performance does not guarantee future results. However, this statistical insight can offer comfort and peace of mind to long-term investors.
2. Nobody can control the market
It is important to acknowledge that the stock market serves as a valuable investment vehicle, offering individuals a smart opportunity to enhance their wealth. However, it is crucial to recognize that the stock market’s behavior is beyond our control.
In essence, excessive worry and concern over uncontrollable market fluctuations holds little purpose or value. Instead, it is more productive to focus on actions within our reach of influence. One such action is implementing adjustments to our investment strategy that help mitigate fears, such as diversifying our portfolio.
Diversification is a wise approach that involves spreading investments across various asset classes, sectors, and geographic regions. By doing so, you can reduce the overall risk associated with your portfolio. This strategy is based on the premise that different investments tend to perform differently under various market conditions.
As a result, if one segment of your portfolio experiences a decline, other investments may potentially offset the losses or even generate positive returns.
3. We are in for the long-term
If you have chosen to invest in the stock market, it is likely that you are seeking long-term financial gains and sustainable growth. Instant gratification is not typically the primary objective unless you are specifically engaged in day trading, which is completely different investment strategy.
Given that the focus is on long-term success, it becomes apparent that fixating on the daily fluctuations of the market is unnecessary and unproductive. Instead of being preoccupied with the short-term ups and downs, it is more meaningful to evaluate the performance of your portfolio over extended periods—months, quarters, and even years.
This broader perspective allows you to assess the overall trajectory of your investments and make informed adjustments that align with your financial goals and risk tolerance.
By observing your portfolio’s performance over multiple timeframes, you can gain a clearer understanding of its growth trajectory. This enables you to identify patterns, trends, and areas that may require modification. Adjustments can be made based on factors such as your desired financial objectives and your willingness to take on risk.
4. No one can time the market
There is limited evidence to support the statement that timing the market is an effective strategy for effectively managing investments. While it may seem wise to buy stocks when prices are low and sell before they decline further, the reality is that successfully executing such precise market timing is nearly impossible for most investors.
In contrast, a prevailing viewpoint advocated by many experts is to adopt a long-term investment approach and remain invested in the market. By maintaining your investments over an extended period, you increase the likelihood of capturing the peaks of gains that the market has historically demonstrated.
It is understandable to feel uneasy when the market experiences a dip or downturn. However, experts advise against making prompt decisions to withdraw your investments during such periods of volatility. Instead, they emphasize the importance of staying the course and remaining invested for the long term.
5. Time in the market beats timing the market
Rather than withdrawing your funds from stocks and seeking supposedly safer investment options, it is advisable to consider implementing changes that promote diversification within your portfolio. Avoid making emotional and time-based investment decisions, and instead focus on adopting a strategy aligned with long-term goals.
It’s essential to recognize that the longer your investments remain out of the market, the less opportunity they have to grow and generate returns. Time is a crucial factor in investment success.
To underscore this point, let’s consider a study conducted on trends spanning from January 2009 to December 2018. The study revealed that individuals who kept $1,000 invested in the S&P 500 throughout the entire period saw their investment grow to $2,775.
In contrast, those who attempted to time the market and missed out on only the 10 best performing days during that period ended up with significantly less, accumulating only $1,722.
6. If you don’t sell, you do not lock in your losses
During times of market decline, it is natural to feel a sense of panic and consider selling your investment holdings. However, it is essential to understand that selling in a state of panic can result in locking in your losses.
On the other hand, if you choose not to sell and hold onto your shares, you maintain ownership and have the potential to participate in the eventual market recovery.
While it may not always be feasible to wait indefinitely, if circumstances allow, it is generally wiser to retain your shares, especially within a broad market index such as an S&P 500 fund, rather than selling at a low point driven by panic.
The rationale behind this approach is grounded in the principle of long-term investing. Markets experience fluctuations, and downturns are an inherent part of the market cycle.
By holding onto your investments during challenging times, you position yourself to benefit from the eventual recovery when market conditions improve.
7. Large companies always find a way to improve
It is crucial to acknowledge that there are certain scenarios where selling your investments makes sense. For example, if you have invested in a startup that is on the verge of folding or a company that is no longer viable in the marketplace, it is understandable that you would want to sell those positions.
However, when your investments are in larger, more established companies, the need to worry may be less pronounced. These established companies often possess greater resources and capabilities to navigate challenging situations and possibly recover.
They have the potential to adapt to changing market conditions by re-evaluating their strategies, developing new products or services, or implementing cost-cutting measures to boost profitability.
In essence, larger companies have demonstrated their proficiency in sustaining profitability even in the face of a challenging stock market environment. As an investor, it is often advantageous to have your investments aligned with these companies, as they possess the resilience and expertise to navigate through economic downturns.
