The stock market is known for its volatile returns, but it has a long history of outperforming inflation in the long run. So, if you don't need to use the money you've invested in the stock market in the near future, it's probably safer to keep it invested than to withdraw it. Taking your money out of the market may seem like the safe option, but it can actually do more harm than good in the long run. Here's why you should continue to invest during bear market periods.
It can be nerve-wracking to watch your portfolio drop steadily during bear markets. No one likes to lose money, but withdrawing your investments now could prevent you from making even more money when the market recovers. Averaging the cost in dollars involves making consistent investments at regular intervals, regardless of the current stock price. This way, you can benefit from lower prices when the market is down and higher prices when it's up.
Ideally, before investing in stocks, you should measure your risk tolerance or how much volatility you are willing to endure in exchange for a higher potential return. Government bonds I, money market funds, high-yield savings accounts, certificates of deposit, short-term government bonds, and high-quality commercial bonds are all good options for older investors looking to convert stocks to cash. If there is one thing to take away from market declines, it is that losing value is not the same as losing money. By investing after stock prices have rebounded, you'll pay higher prices for the same stocks you just sold.
However, if you're investing for a goal that's years away, letting fear keep your money out of the market is a big mistake. Nobody can control the stock market, but as an investor you can control how you handle its ups and downs. As an added benefit, if you continue to invest when stock prices are at their lowest level, you could see substantial returns when the market recovers. Even though the stock market has its rollercoaster moments, stock market crashes aren't that common.
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