Creating a Financial Plan
The market can change quickly and throw investors off balance. Declines are especially disturbing for those who are concerned with short-term fluctuations and watch the daily returns during volatile periods. During such periods, it can be helpful to step back and perhaps adjust your perspective.
For example, a look at the stock market over the past 30 years through December 31, 2016, shows quarterly gains — and losses — of as much as 23%. However, a hypothetical investor who entered the market with $1,000 and stayed the course would have seen an average annual return of 10.16%, and an ending value of $18,226.
Focusing on short-term results could make many investors nervous:
Quarterly Returns of the S&P 500 (1987-2016)
A long-term perspective shows how an investment would have grown over that same period:
Growth of a $1,000 Investment in S&P 500 (1987-2016)
Looking at short-term results can be uncomfortable and frustrating, with the constant ups and downs. Focusing on long-term results can make those relatively brief jolts more tolerable. It may be easier to stay the course if you maintain a long-term perspective.
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