Any investment — whether it’s individual stocks, ETFs or retirement accounts — will have ups and downs that make you want to hop off before it’s done. Most of the time, it’s smart to resist that urge.
Picture: Austin Kirk/Flickr
Personal finance blog Financially Blonde explains how investments are less like riding a bike and more like riding a roller coaster. Namely that it’s a terrible idea to get off a roller coaster just because things get bumpy:
When you invest, the experience is definitely akin to a rollercoaster ride, there are always risks and always ups and downs. I am sure that the 15% plunge in 19 days in 2012 would give even someone with the strongest stomach reason to feel ill. As someone who hates roller coasters, I can absolutely understand this feeling of dread, and the cure for this fear is similar to what I do when I go on roller coasters, I make sure I understand what I am getting on. I think a problem people have when they are investing is that they don’t think about it as a roller coaster ride, they think it should be more like a bike ride. And when they experience uncomfortable bumps, they want to jump off. I make sure that my clients understand the roller coaster and know that there will be bumps along the way, but jumping off, just as it would be a bad move in the amusement park is a bad move where investing in concerned. That 15% plunge in 2012 was painful, but six months later, the market “recovered” and you were thankful you didn’t jump.
Obviously, there are exceptions to the rule, but the myth that the stock market is inherently unsafe is a pervasive one. Until you actually sell off your investment, you haven’t actually “lost” anything. Be patient with your long-term investments, make educated (or assisted) decisions early on, and wait out the storm.