The hardest issue for most investors is stomaching a loss in their investments. And because the stock market can fluctuate, you will have losses occur from time to time. You’ll have to steel yourself to handle these losses, or you’ll be apt to buy high and sell low during a panic.
As long as you diversify your portfolio, any single stock that you own shouldn’t have too much of an impact on your overall return. If it does, buying individual stocks might not be the right choice for you. Even index funds will fluctuate, so you can’t get rid of all of your risk, try how you might.
“Anytime the market changes we have this propensity to try to pull back or to second guess our willingness to be in,” says NewLeaf’s Madsen.
That’s why it’s important to prepare yourself for downturns that could come out of nowhere, as one did in 2020. You need to ride out short-term volatility to get attractive long-term returns.
In investing, you need to know that it’s possible to lose money, since stocks don’t have principal guarantees. If you’re looking for a guaranteed return, perhaps a high-yield CD might be better.
The concept of market volatility can be difficult for new and even experienced investors to understand, cautions Keady.
“One of the interesting things is people will see the market’s volatile because the market’s going down,” Keady says. “Of course, when it’s going up it’s also volatile – at least from a statistical standpoint – it’s moving all over the place. So it’s important for people to say that the volatility that they’re seeing on the upside, they’ll also see on the downside.”