The cost of succumbing to fear

All of a sudden, stock markets tumbled around the world. From Aug. 17 to Aug. 25, the S&P 500 plunged an eye-popping 11.2%.

This is tough for investors because it’s incredibly hard to convince yourself that things won’t get worse.

But history shows that panicking and dumping stocks during bouts of volatility is probably the most costly mistake an investor can make.

The reason for this is because you’re not around to participate in the rebounds.

“Historically, some of the worst short-term market fluctuations and losses were followed by periods of substantial market recovery,” write the folks at the Columbia Threadneedle blog.

“Investors often make the mistake of trying to time the market by simply selling out of it,” they added. “Remember, it is time invested in the market — not market timing.”

“Asset allocation, diversification and periodic rebalancing are tools investors can use to help weather market downturns,” they said. “Having the right investment mix helps strike the right balance between risk and return. Consider your goals, time horizon, risk tolerance and overall financial situation when making an investment or asset allocation decision.”

Good stuff.

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