If you look at the course of the stock market's history, staying invested over the long term has proven to be a better course than bailing out during downturns.
Although past performance is no guarantee of future results, these lessons from the S&P 500 Index are worth noting:
1. Missing a few days in the market can cost you. In a 10-year period from January 1, 1998, to December 31, 2007, if you had missed the best 20 market days, a $10,000 investment in the S&M 500 Index would be worth only $7,745. If you had stayed invested, that same amount would be worth $17,758.
2. The Height of the upturns has exceeded the depth of the downturns. The eight bear markets between 1950 and 2007 saw an average drop of 33.2%, based on the S&P 500 Index. The subsequent bull markets saw an average growth of 134.2%.
3. Stock prices have historically moved back up well before a recession ends. Historically, the S&P 500's recovery has begun on average more than five months prior to the official end of the recessions. These recoveries produced, on average, stock price gains of nearly 26% - before the recession ended.
4. Stock prices tend to recover before profits rebound. Historically, stocks have recovered on average three calendar quarters before a corresponding rebound in corporate profits. And, the average earnings rebound over the ensuing business cycle has been more than 128%.
5. Historically, the longer you stayed invested, the less likely you would have been to lose value in an investment. Since 1926, investors who held stocks for one year lost investment value 26% of the time. Five-year holding periods dropped the rate to 12%. Those who held for 10 years lost investment value 2% of the time. And, investors who owned stocks for at least 15 years did not lose any investment value.
So, when the stock market seems to be swinging on a bungee cord, you might find comfort in taking a longer view.
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