In the stunning illustration below, you'll see stockmarket statistics and colourful charts to reassure you why there's no need to panic when stockmarket values decline.
Why Worrying About A Stockmarket Crash Isn’t Necessary If You Know The Facts
How To Handle A Stockmarket Crash
The current bull run is the longest in stockmarket history. It’s making many people nervous, particularly those who remember the mayhem of 2008.
With stockmarket prices at an all time high, the fear of a stockmarket meltdown is a valid concern for many investors.
But according to Tony Robbins, one of the world’s most famous life and business strategists, it need not be.
Throughout history, humans have thrived because of our unique ability to recognise patterns. Here’s an example.
By understanding the regularity of the changing seasons, humans harnessed these patterns to successfully grow crops and thrive. Acting on repeating patterns has created massive amounts of food and abundance.
Analysis of decades of data reveals there are clear patterns in financial markets.
Robbins contends that by understanding the following seven indisputable facts, you’ll be able to prepare for the seasons of the financial market, giving you an enormous edge over many sophisticated and experienced investors.
1. On Average, Stockmarket Corrections Happen Once A Year
Since 1900, the stockmarket has seen close to one correction year. That’s a fall of 10 per cent or more, but less than 20 per cent.
Corrections are therefore a regular occurrence and not something to be unduly worried about.
The average annual correction is 54 days long, involving a stockmarket decline of 13.5 per cent.
The uncertainty of a correction can prompt many people to make mistakes. But in reality, most corrections are over before you know it.
The smart money suggests it’s best to hold on tight, for it’s likely the storm will pass.
2. Fewer Than 20 Per Cent Of All Stockmarket Corrections Turn Into A Bear Market
When the stockmarket starts tumbling, it can be tempting to sell assets and move into cash.
However, doing so could be a big mistake.
You could be selling your assets at a low, right before the market rebounds.
Turning this on its head, 80 per cent of corrections are just short breaks in otherwise intact bull markets. It means that selling early would see you miss the rest of the upward trend.
3. Nobody Can Consistently Predict Whether The Market Will Rise Or Fall
The media suggests that if you’re smart enough, you can predict the stockmarket’s moves and avoid its downdrafts.
In reality, no-one can do this. Nor can anyone successfully time the stockmarket.
To put this into context, in recent years, many of the world’s most eminent financial experts have made numerous stockmarket crash predictions, and every one of them was wrong!
Had you followed the advice, you would have missed all the gains.
In typical style, Warren Buffett said of experts who make stockmarket predictions:
The only value of stock forecasters is to make fortune-tellers look good.
4. The Market Has Always Risen Despite Short Term Setbacks
Market drops are a very regular occurrence.
By way of example, the S&P 500, the main US stockmarket, has fallen on average by 14.2 per cent at least one point each year between 1980 and 2015.
Yet despite this, the stockmarket ended up achieving a positive return in 27 of 36 years.
That’s 75 per cent, including in the period multiple wars, the financial crisis and other negative effects.
5. Historically, Bear Markets Have Happened Every Three To Five Years
In the 115 year time span between 1900 and 2015, there have been 34 bear markets.
But bear markets don’t last.
Evidenced by the fact that stockmarket prices are at a near all time high.
6. Bear Markets Become Bull Markets
You may have thought the financial world seemed very fragile in 2008.
Banks and businesses were collapsing and the stockmarket was in freefall.
Did it cause you concern?
Or did you feel the good times were just around the corner and about to begin?
The fact is that once a bear market ends, the next year can see crucial market gains.
7. The Greatest Danger Is Being Out Of The Market
From 1996 to 2015, the S&P 500 returned an average of 8.2 per cent a year.
But if you missed out on the top 10 trading days during those 20 years, your returns dwindled to 4.5 per cent a year.
Interestingly, if you missed out on the top 20 trading days, your returns plummeted to just 2.1 per cent.
And if you missed out on the top 30 trading days, your returns vanished, earning you absolutely nothing!
There’s no-one, anywhere, who could pick out the top 30 trading days in the coming year.
It’s led Robbins to conclude:
You can’t win by sitting on the bench. You have to be in the game. To put it another way, fear isn’t rewarded. Courage is.
Some Eye-Opening Figures To Prove The Point
A study from the Schwab Center for Financial Research has revealed some amazing results.
It’s based on you having $2,000 of cash to invest each year for 20 years, starting in 1993.
If you invested at the best moment of each year, you would have ended up with $87,004.
If you had stayed out of the market completely, buying Treasury Bills, you would finish with $51,291.
But if you had invested at the worst point in each year, you’d finish with $72,487.
It’s better than cash, and not far off the best time each year to have invested.
The lesson is that if you stay in the market long enough, compound interest works its magic.
So if you want to minimise your costs and maximise your returns, passive investing could well be the best way to go.
7 Facts To Free You From The Fear Of A Stockmarket Crash
All of the above information is displayed in the beautiful graphic below.
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