Today’s news of U.K.’s vote to leave the European Union—an economic and political partnership of 28 European countries, complete with its own currency—has sent investors scrambling. And as a result, stock markets across the globe are taking a dive.
Now before you panic too, listen up: This kind of reaction to world events is normal.
After the terrorist attacks that rocked the U.S. on September 11, 2001, the markets dropped sharply as worried investors pulled out their money. All the headlines focused on how horrible the financial situation looked and commentators talked about whether the U.S could recover.
Here’s what didn’t get nearly as much press: Just two months after September 11, the markets had returned to September 10 levels. The panic was unnecessary. And this is only one example of dozens that show how the market recovers—and thrives—after steep drops. It’s just the nature of the game.
The Roller Coaster of Investing
Investing your money in the stock market is like riding a roller coaster. You have to be prepared for the hills and drops. You have to be ready for those turns you aren’t expecting. And you have to understand what you’re getting into before you’re locked into your seat. Once that ride gets going, you can’t get off. You can’t hit a stop button, and you don’t want to try to step off mid-ride.
On the other hand, if you hold on and stay seated, you’ll have a wild ride, but you’ll end up safely where you want to be. If you see the ride through to the end, you come out just fine. But if you try to jump off early, well, you’re going to get hurt.
The same is true of the market. When you start investing, you have to be emotionally prepared for it to go up and down—sometimes dramatically, like today. If you’re not prepared for that, you’ll make one of the biggest mistakes when it comes to investing: jumping out at the wrong time.
The Big Picture
If you try to keep your eyes glued on each hill, drop, twist, and turn in the market, you’ll live in panic mode. You’ll never be able to relax and leave your investments alone. Long-term investing only does its magic if you leave your money alone for a long time. Trying to “time the market” is a fool’s game. You have to keep a big-picture perspective.
If you zoomed in only one bad day, the market would look terrible. And if you zoomed in only on the recovery, it would look amazing! Neither perspective gives you an accurate picture. You have to look at the whole thing—the 70-plus-year history of the stock market (or at least since the merger of S&P in 1941). When you do that, you’ll find that 100 percent of the 15-year periods in the market’s history have made money.
The point? If you leave your money alone for a long period of time and invest with the long-term in mind, you’ll come out ahead. Be patient.
If you’re prone to worry or panic, you might want to meet with your investment professional to discuss any tweaks you might want to make in your portfolio. But don’t panic and put all your money under your mattress. Reacting out of fear leads to mistakes you’ll regret later. Instead, strap in the roller coaster a little tighter, hang on, and wait for the landing. You’ll reach your retirement destination with the money you need.