Even unlucky long-term investors make money

By: Time In The Market It’s sometimes hard to be a long term investor. The stock market moves up slowly but can drop quickly. The pain of loss has more impact than the elation of gain. The long term investor who entered the market after 2008 has had a pretty good run. That’s why days when the market drops a few % feel so foreign and scary. However, the long term investor must know that things can and likely will get a lot worse. It might not happen this week or this year but eventually, this bull run will come to an end. There will be days and weeks and months like today. However, the long term investor, should also know that a drop like that might not be so bad in the long run. It takes a strong stomach to sit through those times and stay invested. However, that’s the best way to make money in this market. The worst enemy to long term returns is selling at the wrong time. Many people think that buying at the wrong time is the problem. However, that’s rarely the case.

The case for being a long term investor

Let’s imagine an unlucky investor who had some money to invest and saw that the market in 2007 was rising. Ms. Unlucky heard all about the great returns from the market and wanted to set herself up for a good future. She didn’t have a lot of knowledge about the market. However, a colleague told her that an S&P 500 index fund would give her stock market exposure and she could set it and forget it. She even spoke to Mr. Risk Averse who said the stock market was a fool’s game and that everything was going to crash. He had been mostly out of the market for years and missed all the gains and he wasn’t about to get in now. He had a few stocks but nothing big. It was too risky and overpriced! He recommended putting her money under a mattress; or if she wanted to get crazy, maybe a bond fund. After these discussions; she read some books, learned about the risks involved with stocks, decided she was comfortable with those risk and put a part of her money she didn’t need for the next decade in the market. She was young, had a long term horizon and had some cash on the side in bonds and savings accounts already. It was time to dive into the world of stocks. Ms. Unlucky took $100,000 and put it in the market on October 9th, 2007. You know what happened next. October 9th, 2007 was the day the stock market peaked. That began a long-term decline that didn’t end until March 9th, 2009. The graph below shows what happened to Ms. Unlucky and her investment of $100,000. _.