I am sure you are thinking that the title of this blog is very strange. The words: “In the market stay in and you will win” are easier said than done especially with all of the volatility that we have seen in the financial markets this year. For example through the end of September 2022, the US S&P 500 stock index is down almost 25%. Whoa, I don’t know about you, but for me that is a big drop. You also might ask, how about the more conservative bond market. Has it been a safer place to invest in this year? Unfortunately, 2022 has not been a kind place for bonds either. The Morningstar US Core Bond Index has fallen by 14.6% for the year through Sept. 30th.
With all that declining happening in the financial markets, why don’t you just stop investing and take your money and hide it somewhere for safe keeping? Why all the talk about being a long-term investor and how will it payoff for you in the long run? Well, when we experience volatile financial markets like the ones we are in, this is when we have to hold true to the words from the great American Thomas Paine: “These are the times that try men’s souls. "As difficult as it may feel to stick to your investment plan, these are the times when your discipline and consistency will payoff big. That is because investing has to be a long-term strategy. Although not a guarantee, history has shown that over time the stock market provides strong investment returns following a 20% decline in the market. Let’s take a look at this using the following graph shared by Fidelity.
Let’s simplify it. What this graph shows is that the average returns for the S&P 500 Index the years after the market has declined by 20% is often very positive. Please see the following table of average returns following the 20% market decline.
Now, from this illustration, hopefully it is becoming clearer why being in it for the long-term is the best strategy as an investor. You have to have a long-term perspective to reap the rewards as you progress towards financial freedom and security. There are two legendary investors who also share this same opinion. Let’s see what advice has been given by the greats Warren Buffet and Peter Lynch during times like these. Warren Buffet says: “Be fearful when others are greedy and be greedy when others are fearful." His sentiment is to take advantage of the declining asset prices in the market because it will payoff big for you in the long run. The great Peter Lynch’s advice is similar: "The real key to making money in stocks is not to get scared out of them." His sentiment is to stay the course and keep your investment plans on track even during tough times in the market.
I don’t know about you, but the advice from these legendary investors with proven track records seems like sound advice to me. Please remember that Paycheck to Wealth is here to help you get through these tough times. Please get in touch with Paycheck to Wealth to learn how: In the market stay in and you will Win!