![]() Mistakes can be costly, since selling at the bottom of a bear market typically means you will lock in your losses and miss out on the next run-up.Įach year, fund researcher Morningstar tracks the difference between what investors could have made if they ignored the stock market’s ups and downs and invested consistently, and what they actually did. ![]() While that’s a relatively short time frame, studies have shown that many investors often tend to lose their nerve and sell. Historically, bear markets-typically defined as a drop of 20% from a recent market high-last about nine-and-a-half months, and stock prices fall by an average of 36%. Needless to say, even if you have the time and understand intellectually that stocks will eventually snap back, you still need to think carefully about how much risk you are really willing to take on. One time, the notorious “Black Monday” of 1987, stocks fell 23% in just one day. In fact, the stock market has seen a temporary decline of 10% or more in 10 out the last 20 years, according to stock trading firm Schwab. ![]() Just because you have time to invest in stocks doesn’t mean you have the stomach. There’s more on ways to get help finding the right mix of stocks and bonds below. Owning bonds alongside stocks is especially important as the date of your long-term goal draws near, and you cease to be a long-term investor and become more of a short-term one. They round out their portfolio with bonds, which can help smooth returns over time, since bonds tend to be less volatile than stocks and often see their prices appreciate when stock prices fall. Of course, even with a long-term time frame, most investors don’t put all their money in stocks. The average return for the stock market over 20-year periods is about 7% a year, and the worst it’s ever returned is about 0.5% a year. While you will almost certainly encounter a bear market during the time you invest, you will also have time to ride it out. On the other hand, if you have a long-term financial goal-especially retirement, but any goal a decade or more out-you can afford to invest in the stock market. If you’re saving for the long-term: Invest in stocks Instead, you should consider putting money into investments that may not have as much upside but protect you from losses like CDs or high-yield savings accounts. “We just don’t even let people put money in stocks if their timeline is less than three to four years,” says David Bahnsen, chief investment officer of the investment company the Bahnsen Group. While the stock market has returned about 8% on average a year in the last century and half, in about 1 out of 7 years it has lost 10% or more. The upshot is, if you are investing for the short-term, say to build an emergency fund or pay for a vacation, the stock market might not be the right place for you. If you need the money soon: Skip the stock market But if you can commit to investing for at least five years, your chances of making money are very good.Īnd if you have 20 years to wait, you are all but guaranteed to come out a winner-the stock market has never posted a negative return in any 20-year period, according to one recent study that looked at stock market returns going back to the 1870s. It’s almost impossible to say whether the stock market will go up from one year to the next. So instead, you should focus on yourself: What are you saving for? And how long is your time frame? In the short-term, the market’s ups and downs are unpredictable. But investing pros say this gets the process backward. When you’re ready to invest in stocks, it’s natural to start by looking at how the stock market has performed recently. To prepare, read on for our five-step beginner’s guide to investing in stocks. The upshot: In the long run, buying stocks is one of the smartest financial moves you can make. ![]() And studies have shown unprepared investors tend to make rash decisions, often selling at the wrong time. While history has shown the stock market almost always goes up in the long run, prices are notoriously volatile. And innovations like fractional shares and zero-commission stock trades mean you can invest as much or as little as you want, often for free.īut investing in the stock market can be risky too. With the proliferation of trading apps, you can purchase shares with just a few clicks. What’s more, buying stocks is cheaper and easier than ever. Investing in the stock market can help you reach major personal finance goals like buying a home, starting a business or securing your retirement. As any financial advisor will tell you, owning stocks is one of the surest ways to build your personal wealth in the long run.
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