Use a Telescope, Not a Microscope, When Watching the Stock Market

If you are saving for a distant retirement, it is crucial that you focus on the long-term.  The market will have gyrations that appear catastrophic today, but mean very little by the time retirement nears.

Take this Dow Jones Industrial chart from the 1987 crash known as Black Monday, which included the single worst day in stock market history.

Now look at a lifetime chart of the Dow Jones Industrial average and see if you can find the 1987 crash on it.

That 1987 crash that caused so much panic is little more than a blip, which is why it’s important to view the stock market as a long-term investment.

To put things in dollar terms, if your market timing was terrible and you invested $50,000 the day before the single worst day in stock market history and held it for exactly 20 years, you would have generated a 602% return and ended with over $300,000 in 2007.

Most amazing perhaps is that your market timing in 2007 would be terrible once again, as the headlines for that date exactly 20 years after Black Monday claimed “Brutal selloff on Wall Street” with it being the third worst day of that year for the market.

Bad day to sell—maybe—but in the long term, who cares?

 

Adam Lucas holds a Finance degree and an MBA from the University of Kentucky. His work has appeared in many major outlets including AARP.org and GoBankingRates.com.