Everything You Need To Know About Saving For Retirement by Ben Carlson

Author:Ben Carlson [Carlson, Ben]
Language: eng
Format: azw3
Published: 2020-11-23T16:00:00+00:00

Chapter 14.

You Will Lose Money

Only three things in life are promised – death, taxes and stock market declines. The U.S. stock market has experienced double-digit losses in more than half of all years since 1950. Nine out of every 10 years has seen losses of at least 5% at some point during the year. It’s perfectly normal for markets to freak out on a periodic basis, because humans freak out from time to time as reality does not always line up with expectations.

As an investor in the stock market, you have to get used to existing in a state of loss because the market is below all-time highs the majority of the time. Since 1928, the S&P 500 has hit new all-time highs in roughly 5% of all trading sessions. If we invert this number, that means 95% of the time investors are in a state of drawdown and stocks are down from a previous high watermark.

In the short term, the reasons for market sell-offs feel like they matter a lot and downturns feel like they’ll never end. In the long term, investors tend to forget the specific reasons stocks fell in the past and all corrections look like buying opportunities.

Another benefit of making periodic contributions to your retirement account is the psychological boost they can provide in the midst of a downturn. This is especially true for those just starting out on their retirement savings journey without a sizable portfolio just yet.

An investor who doesn’t have a lot of money set aside should be able to withstand larger percentage losses because the actual dollar decline will be relatively small. On the other hand, an investor with a lot of money in their portfolio can see a relatively small percentage loss lead to a much bigger loss of dollars. For example, these are the dollar losses based on different portfolio sizes and percentage losses:

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