During the last major prolonged stock market crash in late 2008—early 2009, I had a conversation with my freaked-out and pissed-off mom.
The continual drops freaked her out, and she was thinking about pulling her money out of the market to save what little was left.
Even though I wasn’t an active investor then, I questioned this and said, “But if you sell out now, you’ll guarantee losses. How will you know when to get back in?”
She told me she couldn’t take watching her money evaporate every week, and she was getting older and selling.
So she did. Only to buy back in after the market recovered way past where she sold.
And she’s not alone either. Over the years, I’ve spoken with a few other people older than me who did the exact same thing as my mom.
In effect, they bought high and sold low, which locked in losses, and then bought back when the market was considerably higher than where they sold.
I wish I had known this information back then to share with her, but missing just the 10 best days in the stock market over 20 years can cut your returns in half, turning what would have been a 9.5% annual return into about 5.3%.
And since nearly 80% of the market’s best days happen during bear markets, trying to time the market by pulling money out during downturns means you’ll likely miss these important rebound days, which are critical for solid long-term returns.
Check out this chart I whipped up with the help of my good friend, Claude:
Data based on S&P 500 performance. Source: JP Morgan Asset Management
If a $10,000 investment were left alone over 20 years, it would have a final value of $61,685, good for an annual average return of 9.52%.
But if you missed the 10 best days (8 of which would happen during a bear market), your investment would be worth $28,917 for an annual return of 5.33%.
Over a 50% less final investment value!
If you have a decade or more of wealth accumulation ahead of you and do not need that money to pay bills, do as NOFX sang and LEAVE IT ALONE!
Of course, this is about the S&P500 and not individual stocks or specialty ETFs, so keep that in mind.
I love my mom, but let her pain be your gain, and don’t panic sell…EVER! Panic is not a sound long-term investment strategy.
That’s it, and I’d love for you to reply and share what stocks you’re scooping up with this tariff-flavored dip. I’ll respond to every reply!
😁THANK YOU to all who responded to the last newsletter!!
4 Visa (V) | $324.29 (I trimmed four shares down to 35 in the ROTH for a 21% gain to further diversify into ETFs and hit our 85% fund/15% individual stock goal quicker.)
Best selling author Morgan Housel was on with Steven Bartlett and in 25 minutes shared an entire stress free investing philosophy. Share this one with anyone you think needs to hear it!
🎦If you missed it, we’re talking about why I just bought more of my #1 stock that has an incredible 24% yield! But, it’s probably not what you’re thinking…
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