Many of the best things in life make us a bit nervous.
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Some of us are afraid of storms, while others are terrified of clowns. But no matter what we fear, it often boils down to being afraid of the unknown. Investing can be scary because there’s no way to know for certain how things will turn out.
As intimidating as investing may feel, investing in the U.S. stock market has historically been worth it. Here’s why.
We tend to focus on the wrong things
If you’re a frequent flier, you know that focusing on every dip of the airplane can drive you to distraction. Following each dip, there’s a lift, and all those dips and lifts are part of how a plane operates. Your best bet is to focus on something else, like good music, an interesting book, or what the two old guys in the seats behind you are gossiping about.
The market is a lot like flying. There’s a natural rhythm of dips and lifts. Sometimes the market goes way up, and everyone is elated. And sometimes it falls. Making too much of either extreme is what gets investors into trouble.
Focusing on each movement needlessly adds to your anxiety. Unless you invested with the misguided belief that the stock market will make you rich in six months or less, you know investing is like marriage — you’re in it for the long haul.
And if you’re intimidated by the market, it’s the history of the long haul that will bring you comfort.
Historical perspective
Hartford Funds put together an impressive list of statistics showing how the market has behaved since its early days. It’s enough to give anyone confidence that investing ultimately provides the best bang for their buck.
Bears and bulls aren’t so scary
When the market is hotter than a billy goat with a blow torch, it’s called a “bull market.” When the market drops in value by 20% or more, it’s called a “bear market.”
Since 1928, there have been 27 bull markets and 26 bear markets, and we’ve made it through them all relatively unscathed. Okay, truth be told, the investors who came through relatively unscathed were those who were not overextended and did not panic and sell as the market began to dive.
Here’s why: On average, stocks lose 36% of their value during a bear market. By contrast, stocks gain an average of 114% during bull markets.
See what happened? The people who held onto their sinking stock lost, on average, 36%. No matter how you slice it, that hurts. But if those same people hung on to stocks they believed in, they gained 114% once the market turned around.
Bear markets are part of everyday life
According to Hartford Funds, a person who invests over a 50-year period can expect to live through approximately 14 bear markets.
Leading up to the end of World War II, bear markets were relatively common. Between 1928 and 1945, there were 12, about one every 1.4 years. Since that time, there have been 14 bear markets, or one approximately every 5.4 years.
In either case, they’re to be expected. Certainly not enjoyed, but expected.
Bear markets tend to be shorter
The average bear market lasts around 9.6 months. On the flip side, the average bull market lasts around 2.7 years.
Bears do not necessarily portend a recession
While it’s not uncommon for a bear market to occur during a recession, that’s not always the case. Since 1929, there have been 26 bear markets. Of those, 15 occurred during a recession. Sometimes a bear market is just a bear market.
The worst kept secret in investing
Long-term investors know that the best time to pick up stock at a discount is when values fall. In fact, a savvy investor can fatten their portfolio considerably during a bear market. As Warren Buffett says, be “fearful when others are greedy, and greedy when others are fearful.”
If you’re intimidated by the stock market, it’s because you’re a critical thinker who tries to imagine all scenarios. That’s a good quality to possess. It only gets in your way when you allow that intimidation to prevent you from trying. Historically, the stock market has shown that it’s an effective way to grow your money and plan for retirement.
One easy way to get started is to invest in your company’s 401(k), a managed IRA, or a mutual fund. While you will pay a fee for a managed account, you can leave the day-to-day worrying to the professionals. Once you share your investment goals and the level of risk you’re comfortable taking, a professional will design a portfolio that reflects your investment needs.
Think about all the great things in life that can be intimidating: falling in love, starting a business, or moving to a new town. Yes, they can all be scary, but without risk, there is no reward.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
