-
The stock market this week had a scary day on Monday and a great day on Thursday.
-
Temporary declines are a normal part of the stock market’s cycle.
-
Long-term investments in the market generally recover from slumps, a financial planner said.
The stock-market downturn on Monday was sparked partly by a rise in panicked speculation about whether a recession was coming — and with that came fears about what the sell-off might mean for retirement accounts such as 401(k)s, which are often heavily invested in stocks.
But by Thursday, the headlines were singing a different tune, as the S&P 500 had its best day since 2022, the Dow had its best day in three weeks, and the Nasdaq was up almost 3% by the end of the day.
So what do such wild swings mean for folks who stress about what the stock-market ups and downs mean for their investments?
“Temporary market declines like this are totally normal and expected,” Gideon Drucker, the president and a financial planner at Drucker Wealth, told Business Insider in an email Tuesday morning after the market slump.
“In fact, it’s what we all sign up for when investing in the stock market,” he said, adding that, on average, the stock market loses money once every four years and that you could even expect swings of more than 14%.
According to data compiled by Aswath Damodaran, a finance professor at New York University, in the 95-year period from 1928 to 2023, the value of investment in the S&P 500 declined in 25 of those years. That’s about one in four.
“Despite all that, the stock market has made money over every single 15-year period in history and has significantly outpaced inflation in the long run,” Drucker said, “and THAT is why we invest.”
He added that as long as you have your short-term savings and emergency fund properly set up, slumps in stock prices can be a good time to buy. One way to look at it is shares in some of the world’s most valuable companies are being offered at a discount.
“For someone in the accumulation phase of life, the more these prices go down, the more attractive the long-term ownerships of these companies becomes,” he said.
The worst thing you could do during a downturn is panic and sell your stock investments, Drucker said, adding: “There has not been a single market correction in history from which you would have benefited from selling out of your equity positions.”
He added: “Selling is literally the only way that you can turn a temporary decline into a permanent loss.”
In other words, as long as you have enough cash on hand to feel comfortable and have your needs taken care of, even in the event of a big market downturn, you shouldn’t worry — and it’s good to remember you are in it for the long haul.
Because, all in all, a long-term bet on the US economy is generally a safe one.
Read the original article on Business Insider