It’s fun when the investment markets go up. Your nest egg is growing and so is your net worth.
Unfortunately, markets go in cycles. They don’t always go up. In fact, the US stock market (as represented by the Standard & Poor’s 500 Index, which approximates the 500 largest US companies) falls roughly once every four years. Sometimes that decline lasts for almost three years, as it did between 2000-2003. Or, it may be more intense, but only last for a year or two (2007-2009). Sometimes it’s just a week or two, if just to remind you that markets go down.
As an example, look at annual returns of the S&P 500 Index by year since 1980. Over those 37 years, eight have had negative full-year results, but every year has experienced a drop from peak to trough, many of which were pretty scary.
Even the good years have periods when negativity reigns supreme.
What is an investor to do? It seems to me there are three choices.Read more...