Should I Be Worried About A Market Crash?

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Since 1950, we have had 57 market crashes in four major world indexes (US, UK, Germany, and Japan). They can last for months, or they can last for years. For example, the graph below shows how long it took to get your money back if you invested $1,000 before the crash and $1,000 every year after that.

 

 

So what does this mean? There’s no point in worrying about market crashes if you’re a long term investor. As long as you stick to your contribution plan you will be rewarded over time. In fact, according to history and over the long term, the only direction that the stock market goes is up. In Jeremy Siegel’s Stocks for the Long Run, he shows that from 1802 to 2012 the average annual real rate of return from stocks was 6.6% despite all the market crashes in between. If you’re saying to yourself “well, my investment time horizon is much shorter than a century” then just take a second look at the graph and you’ll see that the worst case scenario is 7 years to get your money back (assuming you didn’t put all your eggs in one basket).

 

So once you realize the benefits of sticking it out, a market crash should be looked at as golden opportunity for long term investors. While the panic and fear of the collective world will lower stock prices, you’ll be able to swoop in and buy everything on sale. As the market recovers, you can work with your investment advisor to systematically rebalance your portfolio to optimize your risk adjusted returns.

 

So the next time you hear a media pundit tell you to sell everything because the crash is coming, you can welcome it with open arms.

 

If you are interested in learning more about investing or financial planning, please feel free to contact Perennial Trust at (781) 202 – 6368, email jlento@perennialtrust.com or visit our website at TrustPerennial.comConveniently located at 477 Main Street, Stoneham, MA.


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