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Here Is Why You Shouldn't Sell During A Stock Market Panic

INVESTMENTZEN Why You Shouldn't Sell During A Stock Market Correction What is a stock market correction? The technical definition of a correction is a 10% drop from a recent peak. A stock market correction is a natural part of the stock market cycle. Each bull market of the last 40 years was accompanied by stock market corrections. On average, stock market corrections occur every 1.5 years (357 trading days). Why Selling During A Stock Market Correction Is A Bad Idea Why? A stock market correction can scare many investors and send them rushing for the exits. But a correction is the exact WRONG time to sell. Here's what Warren Buffett has to say: "The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out." If you sell during the correction, you will probably not buy in time to make up your losses when the market recovers. History shows that the market recovers from corrections 100% of the time While the market is volatile, with proper diversification it is not risky. Over the long-term, the stock market ALWAYS goes up. Log of S&P 500 10%+ Corrections out of Recession 10%+ Corrections with a Recession within 12m 7.5 7.5 7.0 7.0 6.5 6.5 6.0 6.0 5.5 5.5 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 1957- 2013 For each correction from Since 1950, the S&P 500 has had 33 corrections. On average, it takes a correction 200 days to recover to previous levels. 1975-2000, the S&P 500 rose above the original peak in < 2 years. When markets are down as much as -25.9% -27.6% -33.5% they can still end the year with positive returns. What About Stock Market Crashes? It's true that sometimes a stock market correction can precede a bear market and result in a stock market crash. These are financial meltdowns that hit every 15-20 years or so. 2043.94 1500.00 1000.00 500.00 0.00 Jan 1/76 | Jan 1/89 Jan 1/02 Jan 1/15 The Great Financial Crisis Black The Dot Monday Com Bust Irrational exuberance in 1997- The 2007-2008 sub-prime mortgage crisis triggers the worst financial crisis since the Great Depression of the 1930s. The Dow Jones Industrial Index 2000 creates the dot com drops 22.6%. It was the single biggest I day drop in history. bubble, which collapses on March 10, 2000. Yet, The Market Always Recovers From the end of 1975 to the end of 2015, the S&P 500 grew at an annualized rate of 8.16%. If you had invested $1,000 at the end of 1975, it would have grown to $22,037.30 by the end of 2015. Even after the Great Financial Crisis, there was a 6 year bull market where the S&P500 gained 220%. Many Americans missed out on the recovery because they sold off their stocks during the crash and were too scared to re-enter the market. You Can't Time The Market The Importance Of Diversification 血 3. Research has shown time and time again that it is a mistake for the average investor to sell off during a stock market correction. You can (and should) reduce the impact of a stock market correction or crash, by diversifying with uncorrelated assets like bonds or commodities. Preparing For A Correction Make Sure You Own The Market Via Index Funds 1 The market always recovers, but that's not necessary true for individual stocks. The best way to own the market is through low-cost index funds. Don't Try To Time The Market 2 Research has shown time and time again that there is no way to reliably time the market, so don't sell off just because you think a correction is coming. Make sure you have a time horizon of at least 2+ years Don't invest money in the stock market you might need to use within 2 years. Your ideal time horizon should be 10+ years. Consider Your Risk Tolerance If the thought of your portfolio dipping 10% or more keeps you up at night, you may need to adjust your asset allocation to better suit your risk tolerance. You will want to diversify away from stocks into uncorrelated assets like bonds. Index investing expert Rick Ferri recommends a portfolio of 60% stocks/ 40% bonds Diversify Into Alternative Assets That Produce Cashflow Even if the underlying asset values fluctuate, having investments that pay consistent monthly cashflow can cushion the impact of stock market volatility. Consider diversifying into alternative investments like: - Cash-flow positive rental properties - Peer-to-peer lending Even though Peter Adeney from was retired during the crash of 2008, his income remained stable thanks to rental income and dividends. Finally, Remember This Warren Buffett Quote 6 "Be fearful when others are greedy, and greedy when others are fearful." INVESTMENTZEN References CNN Money Jim Collins' Stock Market Series Phillips and Company Blog Wikipedia CNN Money Bloomberg View http//|| Investopedia http://| Mr Money Mustache Jim Collins' Stock Market Series The College Investor Mr Money Mustache Business Insider The Motley Fool DQYDJ The Simple Dollar © Copyright 2016 - ++ + ++ 5

Here Is Why You Shouldn't Sell During A Stock Market Panic

shared by investmentzen on Jan 14
It can be a scary, emotional time for investors when the stock market starts to drop. Many investors might be tempted to join the herd in a mad stampede for the exits. But history has shown time an...


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