- 34% in 2020
- 56% in 2007
- 49% in 2000
- 20% in 1990
- 34% in 1987
These periods were no doubt scary while they were happening. Investors probably questioned themselves and the stocks they held with many panicking and selling at low prices. But when we again step back and look at the long-term history of the S&P 500, even the worst declines are little more than minor dips on a chart that keeps trending higher.
In that context, investors should adopt a long-term mindset. We cannot control the near-term ups and downs of the stock market, but we can be reasonably confident the market will climb higher over time.
Image source: Getty Images.
Translating mindset to strategy
Many people also try to “time the market,” waiting for the perfect time to deploy a lump sum of money to maximize their returns. It makes sense in theory, but most people drastically underestimate how hard (virtually impossible) it is to do so consistently.
Remember, the stock market is like a knee-jerk reaction on any given day — how can you predict what it’s going to do tomorrow or the day after? You aren’t much better off than just walking into a casino and putting your money on red or black at the roulette table.
