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Your 401 (k) plan may have seen better days.
Market risks were baffled this week, with the Dow Jones Industrial losing 500 points, or 1.4%, on Monday. At the same time, the S&P 500 is down 1.5%.
But as uncomfortable as it can be to see your savings plummet, you’ll likely regret selling.
“Pain is a sign that you are investing well,” said Alan Roth, founder of Wealth Logic, a financial advisory firm in Colorado Springs, Colorado.
If you can’t face the bad days, he said, you will miss the good days too.
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Over the past 20 years or so, the S&P 500 has generated an average annual return of around 6%.
According to an analysis by Charles Schwab, if you missed the best 20 days in the market during this period because you became convinced that you should sell and then reinvest later, your return would drop to just 0.1%. .
“For long-term investors, we suggest staying the course if they can,” said Rob Williams, vice president of financial planning at Charles Schwab.
Over the years, the market gives more than it takes.
Between 1900 and 2017, the average annual return on stocks was around 11%, according to calculations by Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore. After adjusting for inflation, the average annual return is still 8%.
Therefore, financial advisers are reluctant to make major changes to your investment strategy based on a single downtrend.
One more thing to keep in mind: September is a tough time for stocks, with an average decline of 0.4%.
Surprisingly, however, as October approaches, the market corrects itself.