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I’ve been chatting with more and more strangers and friends alike about investing since I’ve started writing about financial literacy online. There is one common trait I’ve seen in nearly every new investor: you’re way too damn scared to lose money.
Who would want to lose money?
Now, obviously nobody wants to lose money, myself included. The stock market unfortunately does not care about that; share prices go up and down (and back up and back down). All the hard-earned money you put into the stock market is subject to these ups and downs for better or worse. The good news is that it is almost always for the better! Let me explain.
The stock market goes up more than it goes down. Take the S&P 500, which is an index of America’s 500 largest companies that trade on the stock exchange. Pick any 20-year period between 1950 and today (’62 to ’82, ’91 to 2011, etc.) There is not a single 20-year period where you would lose money if you invested in these stocks. Remember when I said the market goes up more than it goes down? This is not just something people say to make themselves feel better when the market is bad… this is a cold hard fact.
Now, just because it’s been true in the past doesn’t mean it will be true forever. But given that it’s held true for the past 68 years, I’ll take my chances. Go look at the S&P 500 chart for yourself! The more you zoom out the easier it is to recognize the trend is going upwards, even though the past 6 months or so have been all over the place.
These past few months have been wild. In 2018 the S&P 500 plunged 20%from its all-time high; hitting the lowest point on Christmas Eve then bouncing back slightly. For many investors (basically anyone who was a child in 2008), last year brought the worst stock market performance they’ve experienced in their lives. The patience and discipline of this generation of investors had yet to be tested to this extent.
On the bright side, the S&P 500 is up over 10% in the first seven weeks of 2019! Hopefully you didn’t let emotions get the best of you and kept your stocks instead of selling them low in December.
What should I do then?
Keep on investing.
If you have money set aside that you won’t be needing within the next few years, there are few investments (if any) that will earn you as much as the stock market does. Investing smaller amounts on a regular, consistent basis allows your account to experience some magic known as dollar-cost averaging. There is no need to try and “time” the market since you will be buying it during the good times AND the bad times. If the market goes down then so what? You’ll just be buying the same companies at lower prices!
Ignore your emotions — but retain your common sense!
Emotions won’t help you make any good decisions in investing. FOMO (Fear of Missing Out) will make you buy stocks that have risen to high valuations, you saw other people make a huge profit and think it’ll be the same for you. Greed will make you cash in an investment to take your gains and run — even though the stock has SO much more potential. The fear of losing money that I spoke of in the beginning will make you anxious and panic sell over a relatively meaningless price drop.
Now, you do still need to use your brain however, especially if you’re buying individual stocks instead of an index fund. You’ll need common sense, which unfortunately isn’t so common anymore. Most of the financial news is just noise and speculation, however sometimes things do happen that are deserving of your attention. Maybe a company you own cut their dividend, or scrapped it all together. If you invest in a company for dividends, you would consider walking away! That’s common sense in action.
Stop checking your investment account daily.
“I buy on the assumption that they could close the market the next day and not reopen it for five years.” — Warren Buffett
The quote above from Mr. Buffett might sound a bit extreme, but the underlying lesson holds true. If you’re investing into the stock market to increase your long-term wealth, then why do you check the prices every damn day? It is time consuming, unproductive, and makes you more likely to make impulse transactions. If you need to keep track of the price, set alerts on your app that will text/email you when the stock hits a certain price.
Pretend $10,000 you have invested in Apple is up 1.5% this morning, and you’re $150 richer on paper. Does that have any lasting effect on your life? Say it went down 1.5% and you lost $150 on paper, does have an effect? It shouldn’t. You don’t need that money today or tomorrow, because if you did you wouldn’t have put it in your long-term savings!
You are young. You literally have decades ahead of you for your money to grow. The price fluctuations of one day, one month, or even one year aren’t going to make or break your life 20 years from now. Given that, I want to ask you this:
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.