Panic & Run???
Disclaimer: This post is for educational purposes only and should not be considered financial advice. Investing involves risk, and past performance does not guarantee future results. Please consult with a financial professional before making any investment decisions.
The Stock Market
When is it time to panic & run???
Lately, I've been getting a lot of questions about stock market volatility. With the new administration, some people feel like it's the best thing ever, while others think it's doomsday. But whether it's a political shift, COVID, a recession, 9/11, or whatever crisis comes next that makes it feel like the world is ending…
Historically, long-term investors who stay the course during downturns have seen stronger financial outcomes than those who sell out of fear.
Here's why:
I teach my clients to invest in the S&P 500, which means they own the top 500 companies in the U.S. The beauty of the S&P 500 is that it constantly updates—if a company like Bed Bath & Beyond goes bankrupt, it gets dropped and a stronger company takes its place. That means I always own the top 500 U.S. companies.
Now, take a step back and think about it—do you really believe our top 500 companies will disappear? Sure, markets dip during tough times, but history shows they recover and continue growing. Selling when stocks are down locks in losses that take forever to recover and prevents you from benefiting when the market rebounds.
See the most recent U.S. examples below and notice how the S&P 500 has consistently rebounded and continued to grow.
During COVID, the stock market plunged 40% in just 30 days—a terrifying drop for investors. But by the end of the same year, the market had recovered and finished up 15.57%.
Now, imagine if you had panicked and sold when the market was down 40%. You would have locked in massive losses, only to watch the market bounce back and miss out on the recovery and profits.
This is why selling in a downturn is one of the most costly mistakes an investor can make. Stay the course, trust the process, and let time work in your favor.
Investing is a Long Game
I recommend investing in an ETF that tracks the S&P 500 because it's diversified across many companies and has over 100 years of historical data showing an average annual return of 10%.
Out of the last 50 years:
About 10 years had negative returns
About 10 years had returns below 10%
Over 30 years had returns above 10%
Yes, volatile years happen, but they are far outnumbered by years of positive growth. See the returns for the last 54 years below. The bright green are all the years with returns above 10% and they are the majority of the years.
When the Market is Down, You're Getting Stocks on Sale
If you own a diversified portfolio like the S&P 500, history suggests that staying invested—even during downturns—has led to long-term growth. Selling during a dip locks in losses, while continued investing allows you to buy at lower prices.
I know the pain of selling during a seemingly doom and gloom time firsthand. In my early years of investing, I panicked and sold during big drops. The losses I locked in devastated my long-term wealth. It was a costly lesson, but I learned the hard way that if I stay the course, the Stock Market will recover and so will my investment in the S&P 500 ETF.
If you feel lost when it comes to investing, it's time to take my class. Investing is a must if you want to build wealth, and I make it simple by breaking down all the confusing jargon so you can easily invest with confidence.
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Disclaimer: I am an educator, not your personal financial advisor. Please make sure to do your own research before moving forward with any actions discussed in this blog post.
Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!