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The stock market had a scary day on Monday and a great day on Thursday this week.
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Temporary declines are a normal part of the stock market cycle.
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According to a financial planner, long-term investments in the market typically recover from a recession.
The stock market’s Monday decline was driven in part by increased panicky speculation about whether a recession was coming. With it came worries about what the selloff might mean for retirement accounts such as 401(k)s, which are often heavily invested in stocks.
But Thursday’s headlines were a different story: The S&P 500 had its best day since 2022, the Dow had its best day in three weeks and the Nasdaq ended the day up nearly 3%.
What do such wild swings mean for people who worry about what stock market fluctuations mean for their investments?
“Temporary market declines like this are completely normal and expected,” Gideon Drucker, president and financial planner at Drucker Wealth, told Business Insider in an email Tuesday morning after the market drop.
“That’s actually what we’re all signing up for when we invest in the stock market,” he said, adding that the stock market loses money on average once every four years and that you can expect fluctuations of more than 14%.
According to data compiled by Aswath Damodaran, a finance professor at New York University, over the 95-year period from 1928 to 2023, the value of the investment in the S&P 500 declined in 25 of those years. That’s about one in four.
“Despite all of that, the stock market has made money in every 15-year period in history and has significantly outpaced inflation over the long term,” Drucker said, “and THAT’S WHY we invest.”
He added that as long as you have your short-term savings and emergency fund set up properly, stock price declines can be a good time to buy. One way to look at it is that shares in some of the world’s most valuable companies are being offered at a discount.
“For someone who is in the accumulation phase of their life, the further prices fall, the more attractive it becomes to own these companies over the long term,” he said.
The worst thing you can do during a recession is panic and sell your stock investments, Drucker said, adding: “There has never been a market correction in history where it would have been beneficial to sell your stock positions.”
He added: “Selling is literally the only way to turn a temporary setback into a permanent loss.”
In other words, as long as you have enough money to feel comfortable and to meet your needs, even in the event of a major market downturn, you have nothing to worry about. And it’s good to remember that you’re in it for the long haul.
Because a long-term investment in the US economy is generally safe.
Read the original article on Business Insider
