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The value of investments can fluctuate, but don’t panic. Find out how to tell when you actually have a problem. [[{“value”:”
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You’ve probably heard that investing money is a good way to get rich. After all, if you open a brokerage account, buy stocks, and earn returns on them, you’ll end up with more money — and sometimes a lot more money — than you put in.
And indeed, it absolutely is the case that investing is one of the best ways to grow your net worth. It can be a whole lot smarter than just sticking all of your extra cash into a savings account, where your returns are limited. But the big question is, what happens if your investments don’t perform well? Should you worry if you’re losing money instead of making it?
Here’s what you need to know if you’re coping with a portfolio balance that’s smaller than you’d like it to be because of some poorly performing assets.
Even good investments can sometimes lose money
The harsh reality every investor needs to face is that sometimes they can have a great investment and do everything right, and still lose money — especially in the short term. This is because factors beyond their control can impact the performance of even the best investment.
For example, take a look at the chart below showing the performance of the S&P 500, which is a financial index of 500 of the largest U.S. companies. It’s objectively one of the safest investments out there, as it’s consistently produced 10% average annual returns over the long term and it basically involves betting on the American economy. You can invest in it by buying shares of an S&P 500 ETF (exchange-traded fund).
But look how it does in the short term. In some years, investors may have suffered close to a 20% loss.
If you had money in this investment during a bad year, this doesn’t mean you made a bad investment; it means that you had bad luck on timing. But as long as you held onto the asset, you’d almost certainly make back all you lost and more over time.
Consider how confident you are in your investment choice
While it’s natural to feel worried if you see your investment account balance falling, you absolutely should not be concerned as long as:
You made an informed investment choice and bought an asset with a solid performance record or with solid future potential, based on extensive research into the asset.You have a long investing timeline (around five or more years until you’ll need the money), so you have time to wait for a market recovery.Nothing fundamental has changed about your investment that would call its future performance into serious question (such as the company’s leader and visionary dying if you’re invested in an individual company).
If your investment is still a good one that’s performing badly because of natural market cycles or economic conditions unrelated to its fundamental traits, then you shouldn’t be worried.
You should stay the course, wait out the downturn, and feel confident that your investment will make money over time. This is the very reason why long-term investors tend to do better with investing in the end.
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