6 Investment Truths to Remember When the Stock Market Is Down

Author: Damian Davila / Source: Wise Bread

Forget Halloween — February 5, 2018 stands as the new scariest day. On that day, the Dow Jones industrial average (DJIA) plunged almost 1,600 points, marking its biggest point decline in history during a trading day. If you felt like you wanted to sell off all of your stocks and take the money, you were not alone.

Still, it’s at times like these that you need to keep a cool head and stick to your original financial plan. Here are a few things to remember when the stock market takes another dive. (See also: 6 Confidence-Inspiring Facts About the Stock Market)

1. Historical average return of stocks is close to 10 percent

Take it from Sir John Templeton, who created one of the world’s largest and most successful international investment funds: “The four most dangerous words in investing are ‘This time it’s different.'” (See also: 14 of the Coolest Sayings About Investing)

While losing 1 percent of your 401(k) balance on a single day may seem terrible, the reality is that it’s probably going to be a small hiccup on an ever-increasing journey. The average return of the S&P 500 from 1968 to 2017 was 10.05 percent. Even when you take a look at a smaller period of time, this benchmark of the health of the overall stock market performs quite well. The S&P 500’s average return for the 2008–2017 period was 8.42 percent.

2. The longer the holding period, the higher the average return

The concept of “buy and hold” has been around for quite some time, and it’s a key thing to remember when the market looks rocky.

Experts have long recommended riding out the rough times.

“The market pays a premium to those willing to endure the angst of watching their net worth fluctuate beyond what Wall Streeters call the ‘sleeping point,'” wrote former Federal Reserve Chairman Alan Greenspan. (See also: 3 Pearls of Financial Wisdom From Alan Greenspan)

Warren Buffett, better known as The Oracle of Omaha, famously echoed the sentiment: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” (See also: The 5 Best Pieces of Financial Wisdom From Warren Buffett)

Here’s an example of why buy-and-hold holds true: The S&P 500 index increased 21.64 percent and 102.50 percent during the 2016–2017 and 2000–2017 periods, respectively. In investing, it truly pays off to go the distance.