Originally Posted by Maxwell78
The chart you’re looking at is the calendar year returns on the S&P 500 going back to 1980. There’s a lot of data here, so let’s just deal with the far left-hand side for example, 1980. In the calendar year 1980, the stock market went up 26%. Pretty good year. But what that red dot is showing is the inter-year decline of 17%. So think about what happened here. As the market begins a new year in 1980 obviously, it must have started to accelerate to the positive, and it goes up for a while. And then it rolls over, starts to go down, and everybody has a different threshold of pain, and it goes down 5, 6, 7%, and all of a sudden, we’re reading about Brexit or default or fiscal cliffs, and we become concerned. At some point as it goes down to, let’s say, 12, 13%, we believe that we should extricate ourselves from the market. This is fun with math only, but on that red dot, down 17%, if you got out of the market on that day, your cost of opportunity was 40%, because if you put a dollar in on that day, you got a 40% return. That’s how you win. You cannot achieve your long-term goals in the stock market by consistently crystallizing losses every time it goes down.
The important thing to note on this chart is those red dots, that every year without exception, at some point during the year, there is a negative rate of return achieved. It’s how you deal with that event that will determine how financially successful you are over time.
Just some food for thought. It's what i live by
Take care everyone
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