March 12, 2020
When Markets Dip, Don’t Drop Out
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This infographic explains how staying the course during market dips can be healthier for an investor's portfolio. It considers three types of investors over the course of 40 years:
- Stalwart—A disciplined investor who continues to invest, no matter how the market performs.
- Reactor—An investor who pulled his money out of the market in 2008 and kept it out. Continued to save 10% of his salary but didn’t invest it.
- Waffler—After any year with negative returns, this investor moved her money out of the market but continued to save 10%. If the market was up after two years, she got back in and reinvested in a portfolio suitable for her age group.
A chart showing wealth accumulated from 1980–2019 indicates how each investor did over time. The Stalwart accumulated $1,102,281; the Waffler accumulated $615,349; and the Reactor accumulated $484,902.
Each investor saved the same amount annually. The difference was in the way they behaved during bear markets. The bottom line: the person who reacted the least to market conditions gained the most.