For the past two years, the stock market has been yo-yoing. One day, it’s up, the next day, it’s down. No one can agree on where the economy is headed.

Some people are ready to retire and need to decide how to transfer their 401k or pension accounts. In that case, it is very important that the money last until retirement.

Others want to make sure their retirement accounts can continue to grow so they can retire. There has been a lot of talk about whether we should be moving our money around in an effort to keep you from losing more than you already have.

Since the stock market has been falling, we’ve heard friends talk about getting out of growth stocks. Some are pulling out of value stocks. People are cutting their losses on real estate investments.

There is talk of jumping to have less volatility. Others are moving to CDs (certificates of deposit) for security and stability. Others are willing to sit tight in the money market or a basic savings account until things seem to settle down.

So what is the best thing to do in an economic environment like this? The truth is, when setting smart goals, you want to do what’s best for you and your home. You have to do whatever helps you sleep comfortably at night.
Make an educated decision

However, before making any changes, it is also important that you make an informed decision. Remember that history tends to repeat itself. Therefore, I will share with you some historical trends in the financial world that can help you decide what to do.

Now, historically, equity markets fall as a recession approaches. However, they eventually stabilize and then recover. I will give you two examples.

When the stock market closed in 1914, the initial reaction of investors sent the market down about 10%. However, about four months later, the market was up about 21%.

We all remember the terrorist attacks that occurred on September 11, 2001. The investor response to those attacks sent the market down a little over 14%. Again, almost four months later, the market is up almost 25%.

According to Dr. Jerry Webman, chief economist at OppenheimerFunds, Inc., “The S&P 500 rose 24% on average in the six months after ten of the last eleven recessions. The outlier year was 2001, when stocks were grossly overvalued.” before the recession.

The S&P 500 is an index that contains 500 large public companies. It is considered to represent the US economy.

The most important thing to keep in mind is that the losses you see on your statements are just paper losses. They are not real losses until you sell the investment.

By selling an investment, you not only realize that loss, but you also withdraw from the market. This is likely to make you lose the market bounce. Let’s look at another illustration.

Over the past 20 years, the market has risen 9.3% annually, not counting dividends. Had your money not been invested in the best 20 days of that entire 20-year period, your average annual return would have been nearly halved, to 4.8% per year.

We don’t know when the best days will occur, and not being ready can significantly affect your returns.
It’s hard to beat equities in the long run

When it comes to bonds and CDs, neither will give you the returns of the stock market. While they can be a nice addition to your portfolio, they can’t replace stocks.

While bonds can give you a constant, fixed rate of interest, that return will be less than the returns you can get in the stock market. It is also incorrect to believe that CDs are stable investments. CD rates fluctuate constantly. Your rates will most likely be different each time your CDs mature.

What makes matters worse is that the low yields provided by CDs all but disappear when inflation and taxes are factored in. For example, in 8 of the last 20 years, the rate of return on 6-month CDs has been less than 1% after inflation and taxes. Your money is not growing.

Before making any changes, review your goals. If you have some short-term financial goals, it may be better to make some changes. However, if you are really investing for the long term, market volatility is just a setback. It has happened before, and the market will rise again, as it has for the last century.