Once again we are experiencing some wild swings in the stock market.
But the sky is not falling.
If you remember back to 2008 and 2009, the stock market, in some sectors, dropped over 50%.
At that time all I heard from most of the media (TV, radio, print news, online news) was the sensationalized story of how much money people were losing.
People were NOT losing money unless they sold their investments. Those of you that hung in there were just fine, eventually.
Yes, your portfolio was worth less at the end of 2009 than it was at the beginning of 2008, but you didn’t lose money. You had the same number of shares at the end of that period as you did at the beginning. Those shares were just worth less.
And then the markets recovered. And they recovered for almost 10 years.
What drives me crazy is that most of the media still likes to talk about how much money people are losing when the market drops. But if you stay invested you are not losing anything. Only the sellers are subject to any losses, and only if they sell after their investments have lost value.
So why does the media do this? Well, my best guess is that fear sells. Fear keeps you watching the news and reading the newspapers but it does nothing to help you sleep at night.
So here is the truth — no one knows what the stock market is going to do on any given day. That’s why investing in the stock market is not something anyone should do if they have five years or less to invest.
Investing in publicly traded companies is a long-term strategy, and unfortunately, thinking long term is not easy. We live in an instant gratification society.
I understand that when your monthly statement shows your portfolio has less in it than it did the month before that doesn’t feel good. I have all my retirement money invested in the stock market too, and I don’t like it when the market is down any more than you do.
But I’ve been at this investing business a long time so I’m used to the ups and downs. It’s normal. On average, the U.S. stock market goes up about two-thirds of the time. It helps to remember that next time we see the market drop.
This month has been a bit crazy. Investors are worried about a number of things including the effect tariffs are going to have on company profits, rising interest rates, a mid-term election coming up, among others things.
I don’t expect the market to suddenly calm down. The market doesn’t like uncertainty, and if the Democrats take over the House after these mid-term elections, there will be a lot of uncertainty as to what is going to happen next.
However, with that being said, there was a lot of uncertainty when Donald Trump was elected President and the markets just kept climbing.
So I’m not making any predictions here.
What I am doing is recommending you keep your eye on the long haul. The short-term ups and downs in the market are going to happen, and they are going to keep happening. It’s why investing in the stock market is often referred to as a roller coaster ride.
We can’t control these ups and downs, but we can control how we feel about them. Just know that they are normal. There will be years when our investments go up, and other years when our investments go down, but over time, the stock market has averaged a growth rate of about 10% per year.
Just like riding a roller coaster, if you hang in there everything will work out fine, but jumping off in the middle is really not recommended!