Investing is a fun way to achieve future success. But what if the stock market crashes right in front of your eyes while you have money in it?
When you are first starting out with investing it may look all nice seeing your money increase. But what happens when the market crashes? Thinking about damage controle you would think the best thing would be to leave the market now, just taking the loss. However in the long them this is the worse thing you can do. You may be losing ‘only’ 20% instead of 50%. If you are in need of the money in the short term it may be the least damaging option of the bad options.
If however you have always been carefull to only invest with the money you don’t need yet, you have a way better opportunity here. A financial crises is the moment that most money is lost and most money is made. If you are able to stay in the market you will witness the entire crash. It feels bad to be in a crashing market, but you learn so much from it. Besides as long as you don’t sell your shares, you are not taking the loss. Within a year, maximum 3 years the shares will have raised immensely and you get back into the profit, without ever taking a loss on your shares.
The key to making money is to stay invested. – Suze Orman
The biggest benefit of staying in the market is yes you see a drop in money, but you also participate in the price increase. When you sold your shares with a loss it’s rarely possible to jump back into the market when it’s at its lowest point. So you are missing the explosive race up. They moeny that you lost will not be made sitting at the side.
If you are not able to sit out a deep crash, investing might not be good for you. When you are investing you have to manage your own risk tolerance. Acknowledge the fact that the money you put in investments can drop in the short term, but it will increase if you sit in the market long enough. Any big succes in life is only achievable when you sit out difficult times and go through hardships.
Not sure how risk tolerant you are? Determine it by thinking about how long you are giving your money the time to grow. If it is a short term, don’t invest. Is it a mid-long term: 5 – 7 years. Don’t invest, unless you are willing to take the hit if you are not able to take it out after 7 years. For a long period of time: more than 10 years, be sure to invest. However you have to prepare stepping out the market early if you want to get your money back to use it. The best thing is starting young with investing and letting your money sit in it untill your 60s and preferably even after that. Just start using your dividend at the age of 60-65.