In the midst of all this market chaos, it might be tempting to run away from stocks. But if you’re investing for the long term, things should be ok.
A blog post by Charles Schwab’s Liz Ann Sonders lays out the argument that it’s important to keep a diversified portfolio and to focus on the longer term. She noted,
“We believe it’s the ‘strategic’ (longer-term) asset allocation decision — and the ability to stick with it through the discipline of rebalancing — that will ultimately reap the greatest rewards. These decisions are not a function of short-term market gyrations or forecasts (mine, yours or anyone else’s), but are tied to your risk tolerance and long-term goals. Developing and maintaining the right long-term asset mix is by far the most important set of decisions an investor will ever make.“
To drive the point home, Sonders included a chart showing the range of stock market returns over different time horizons. The longer you hold on to stocks, the less variable your returns are, as the up and down swings of the market average out over time.
Historically, over a one-year time interval, stocks can make wild swings, ranging from a 54% gain to a 43% loss. But if you’re investing for a longer time, and looking at a 20 year horizon, average returns fell in a much smaller range, with gains between 3.1% and 11.7% annually:
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