Oh No! My stocks are down 15%!
If like me, you have money in the stock market, your net worth probably took a tumble recently. But history shows that it’s no big deal. If anything, it may be a great time to buy stocks now.
It pays to invest long-term
If you had bought Nvidia stock a year ago, you would have seen its price drop 15% over the next couple months. Many investors are short-sighted and would have sold at a loss. But after the 15% drop came the bitcoin frenzy and a rally where the stock more than doubled.
Throughout the entire history of the stock market, the trend has been consistently up. Even in the worst of times, you would have done well if you kept a long-term mindset and left all your money in the market.
Let me give you two scenarios to consider:
A: You’re living in the midst of the roaring 1920’s. Your business has done well and you have $30,000 to invest in the stock market.
B: You’re living in the midst of the roaring 1920’s. You’re only 25 years old and you want to invest $1,000 a year in the stock market.
Now, look at the chart to see what happens over the next 30 years in each situation.
The red line represents scenario A. You would have more than doubled your money before the Stock Market Crash of 1929 hit. Then you would have watched your $75,000 drop to $15,000 at the height of the Great Depression. If you sold there, you would have lost half of your initial investment. But if you kept your money in the market, it would have gone back over $30,000 within 3 years (so you lost no money), and over the $75,000 high in 22 years.
The blue line represents scenario B. It is the more realistic scenario representing a lifetime of work, saving, and investing. In this scenario, you would have invested $5,000 and made $3,750 in profit by 1929. By the height of the Great Depression in 1933, you would have watched your $9,000 investment drop to $4,000 in value. But then by 1936, your $12,000 in invested money would have been worth more than $14,000.
In both scenarios, you would have lost a lot of money if you stopped investing and took all your money out of the market in 1933. By investing long-term throughout your life and ignoring whatever short-term calamities that occur, you will grow your money. Investing is not gambling. Play the long game.