Money Principles – The High Price of Panic

E L Emerson

I’ve included one of my favourite charts below.

And obviously from the heading you can see that it shows the history of US bull and bear markets for the S&P 500 index for the last 90 years.

Now hold on, don’t run away!

It doesn’t really matter whether you know anything about stock markets or indexes (groups of listed companies) like this one. 

The point here is relatively simple: Historically speaking, bull markets (upwardly moving stock market trends) last a lot longer and are far more often the case than bear markets (downward trends).

But it also tells us something else, or at least it should.

What it should do is give you an idea about the value of NOT overreacting to short-term bad news or dips and even plunges in stock market values. It’s a bad idea, particularly if your reaction is to cut and run.

Think about it: If the average bull goes on for about 8.9 years, and bears carry on for about 1.3 years you might conclude that the good times far outweigh the bad times. 

And in general terms, US markets are in a bull (positive) about 80% of the time or more and, while the bad times can certainly get scary, they’re usually relatively short and the markets recover and advance beyond their previous highs (relatively) soon afterwards.

From here, you might want to think about this chart over the weekend.

If nothing else it’ll get you thinking that investing for the long-term is probably a better idea than doing so for the short term, because it allows you to ride through the dips in the waves and onto higher swells. 

So on that final point, tomorrow we’re going to be looking at the real financial value and benefit to you of long-term investing through the lens of Money Principles.

The concept we’ll be looking at is called “compound interest,” an amazing but simple mechanism that Albert Einstein once described as one of mankind’s greatest inventions.

And he was a pretty clever dude.

How to Retire a Millionaire (On An Average Wage)

So, if you follow this series of HNW’s Money Principles you’ll notice we focus heavily on the basics.

That’s because without the basics you’ll never really come to understand or accept why you need to make any changes to your financial behaviour in the first place.

If you want to take the next step in your wealth journey towards what you can actually do yourself to retire as a millionaire, even if you’re on an average wage, you can sign up to our weekly update below.

And don’t worry, it’s free.

See you next time on Money Principles.

E L Emerson, Editor, HNW Magazine

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