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With the pandemic proving hard to leave behind and the global economy still suffering, the stock market is having a bad week.
But while it can be painful to watch your investment accounts shrink, you’ll likely regret selling.
“Pain is a sign you’re investing well,” said Allan Roth, founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado.
That’s because if you can’t withstand the drops, you’ll also miss out on the gains.
Over the last 20 or so years, the S&P 500 produced an average annual return of around 6%.
But if you missed the best 20 days in the market over that time span because you became convinced you should sell, and then reinvested later, your return would shrivel to 0.1%, according to an analysis by Charles Schwab.
“For longer-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 has been around 11%, according to calculations by Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore. After adjusting for inflation, that average annual return is still 8%.
As a result, financial advisors caution against making any big changes to your investment strategy based off one bad day or period.