How To Never Lose Money In The Stock Market, In One Simple Chart
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Day to day, the stock market is a crapshoot. If you day trade or swing trade, you probably know how to navigate these natural ebbs and flows. But if you’re investing your money for the long haul, seeing wild dips and swings can be unsettling at times.
In March of 2020 we saw that first hand. If you held just about any stock or ETF, you would have seen it drop like a rock in the span of a few days. Take VTI for example. It fell from a $170 per share to $115 in the matter of weeks. Selling then, out of panic and fear, would have cost you the nearly 100% gain it made over the course of the rest of the year.
Below shows the market’s annualized returns in 1, 5, 10, and 20 year rolling periods.
The less you look, the easier it gets. pic.twitter.com/ZuCF3Xuhd1
— Daniel Crosby (@danielcrosby) March 29, 2021
As you can clearly see, time in the market is better than timing the market. Especially over the long haul.
The range of returns between 1 and 5 years can be extremely volatile and unpredictable. Just like the VTI scenario from 2020 mentioned above.
- 1-year: From -37% to 53.2%
- 5-year: From -11.7% to 28.5%
- 10-year: From -4.1% to 17.6%
- 20-year: From 0.5% to 13.2%
Now, of course you shouldn’t look at your investment portfolio as set it and forget it. It’s wise to look at your portfolio and rebalance it from time to time. You also shouldn’t take the entire market outcome over 20 years and associate it to single stocks. Businesses fail every day. If you want similar long term returns, you need to be diversified.
[H/T Measure of a Plan]