What I am doing to deal with the stock market crash (Part 2 of 5)

The ups and downs of the stock market affect all of us. Even if you don’t buy or sell stocks, you still own stocks through your retirement accounts (like 401K).

I had written earlier about why one should not panic during a market downturn. However, as the market continues to go down further, it isn’t easy to stay invested. So here is a valuable lesson from history.

The chart below shows an investor’s returns from the stock market over the last 100 years.

If they bought and sold stocks often – say every year, they had a positive return 75% of the time. So out of the 100 years, they would have made money in 75 years and lost money in 25 years. If they held on for 3 years (instead of 1 year), they would have made money 83% of the time.

What if they had decided to hold on for 10 years. Suddenly their chances of making money went up to 95%. And if they held on for 15 years. Well, in that case, they never lost money.

There was no 15+ year period when the stock market was down.

Investing is inherently risky, but the remarkable thing about investing is that the risk decreases as time increases. The only guaranteed way to make money is to invest for a long period of time. Hence the old wall street saying – time in the market is more important than timing the market.

If you think the current market downturn is terrible, just remember that the chart above covers far worse downturns – the Great Depression, Dot-Com Burst of 2000, and Global Financial Crisis of 2008. Not to mention, the second world war happened during this time period as well.

So no matter how bad things get, you will always come out ahead if you invest for the long run.

In conclusion

If you follow this blog, then hopefully, you have built a strong foundation and are regularly investing in a low-cost index fund every month. If so, this is an excellent time for you – you are getting to buy stocks on sale. There is a 20% discount on stocks right now.

Although downturns are not fun, they are an essential part of making money – Fortunes are collected at the top, but fortunes are made at the bottom.