This is because the stock market tends to go up over time. In fact, the S&P 500 has returned an average of 11% per year over the long term.
Of course, there will be ups and downs along the way. But if you’re willing to ride out the temporary downturns, you’ll be rewarded with higher returns in the long run.
Here’s an example:
Imagine you invest $10,000 in the S&P 500 today. If the market returns 11% per year, your investment will grow to over $100,000 in 30 years.
But what if you sell your investments after a few years because you’re scared of a market downturn? You’ll likely miss out on some of those long-term returns.
In fact, a study by Dalbar found that the average investor earned a return of just 5.7% per year over the past 20 years. This is because the average investor sells their investments too early, chasing short-term gains and avoiding losses.
If you want to increase your returns, the best thing you can do is hold your investments for the long term. This means riding out the temporary downturns and staying focused on your long-term goals.
Here’s a tip to help you stay invested for the long term:
Don’t look at your portfolio every day. The more you look at it, the more likely you are to get scared and sell your investments after a market downturn.
Instead, check your portfolio on a quarterly or annual basis. This will help you stay focused on your long-term goals and avoid making impulsive decisions.