Worrying about the ups and downs of your investments is like worrying about summer turning to fall. Changes to the market are like changes to the seasons — they’re both natural.
If you’re a worrier like I am, I’m sorry. But I also want to share with you these four reasons you may want to move on to worrying about something else.
1. Bull and bear markets are two sides of the same coin
When stock prices increase by 20% or more, it’s a bull market. When stock prices fall by 20% or more over a sustained period, it’s considered a bear market. While investors tend to prefer bull markets, one market phase is not ultimately better than the other. We need them both if we want to shore up our finances.
Imagine what would happen if stock prices never fell, if they continued to climb year after year. At what point would stocks become so expensive that only the very (very) rich could afford to invest in the market? It’s when stock prices tank that regular investors can afford to scoop up bargains.
Plus, it doesn’t take a historian to note what happens following a bear market. According to The Hartford Fund, about 42% of the S&P 500 Index’s strongest days in the last 20 years occurred during a bear market. Because the market experiences a natural ebb and flow, we know that bear markets turn into bull markets, and any stocks we purchase at a deep discount during the bear phase become far more valuable.
On average, stocks lose 35% of their value during a bear market. However, those same stocks gain 111% on average during a bull market.
Was it fun? Nope. Was it really good for our portfolios? You betcha.
One way to protect yourself from losses is to create a diversified portfolio, with stocks, bonds, and cash. — opening an account with one will make it easier to diversify when balance is needed.
2. Bear markets tend to be brief(ish)
The first time I realized I wasn’t losing my ever-loving mind during a bear market, I also realized why. I knew that the average length of a bear market is 289 days, or about 9.6 months. On the other hand, the average length of a bull market is 965 days, or 2.6 years.
Once I accepted that bear markets are a natural part of the economic cycle, I also decided that I could wait them out. Why worry when, time and time again, the bear market that followed more than made up for bull market losses?
3. If it bleeds, it leads
When I was a young reporter, I remember hearing the phrase, “If it bleeds, it leads.” Bad news sells, whether it’s a newspaper, magazine, blog, or ridiculous social media post. To capture our attention, there are those who try to scare us half to death every time stocks dip.
Think of how often we’ve been told that a recession or even a depression is nigh over the past five years. It’s big news — even when it’s not true.
Usually, the group shouting loudest hopes to gain something by working people into a frenzy. It may be to sell more copies of their publication, earn money from advertisers, convince us that they’re the only politician who can get us “out of this mess,” or talk us into buying a book, gold, or some other product they’ll earn a commission on.
When you learn to block out the noise and focus on what we know to be true (markets go up and come down), you have far less reason to worry about your retirement fund.
Need a retirement account? and enjoy a tax break on your retirement contributions.
4. We focus on the scary stuff first
I understand that humans have always had to look out for the things that can harm us, like lions, poisonous snakes, and Attila the Hun. Still, it makes no sense to consider a dip in the market as dangerous, even when our portfolios take a short-term hit.
Let’s say you begin investing at age 25 and stop at 75. According to The Hartford Fund, you can expect to live through 14 bear markets (give or take) during that time. Over 94 years of market history, stocks have been on the rise 78% of the time.
Will there be years when stock market news is all doom and gloom? Absolutely — it’s always been so. Will there be times when we’re tempted to worry about retirement? Given how inundated we are with negative news, it would be weird if a worried thought never crossed our minds.
When that happens, I challenge you to do one simple thing: Be grateful that markets rise and fall. Otherwise, our portfolios would have less opportunity to grow.
