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It’s hard to believe that just five years ago this week, we were in the middle of an economic meltdown. Banks were failing, businesses were closing their doors, and the unemployment rate was skyrocketing into the double-digits. Every print, online and broadcast news outlet covered the painful developments in minute detail.
Over several months, the stock market plummeted while people watched the balances in their retirement account shrivel away. Americans began to lose hope that our nation and economy could bounce back from such a severe blow.
Investors responded by pulling $240 billion out of their mutual funds during that time, and many vowed never to return to stocks. Now, just five short years later, that strategy has proven to be a mistake.
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A Million-Dollar Mistake
Take two investors, both with a $10,000 balance in their retirement accounts on October 15, 2008. We’ll say their portfolios are designed to track the S&P 500 exactly.
The losses were too much for our first investor, so he gave up on his long-term plan and stopped contributing to his account. But he left his $10,000 invested. From that point on, Investor One never actually lost money year-over-year, and, by the end of September 2013, his balance had more than doubled to $20,684.
That’s not too bad, and maybe it’s enough of an encouragement for Investor One to get back on his plan.
Investor Two, though he had his doubts, continued investing $625 each month—even as the market continued to fall. It wasn’t easy to do, but his commitment paid off. Through September 2013, Investor Two added more than $36,000 in new contributions, and his balance now stands at nearly $77,000.
That’s a $56,000 difference Investor One may not ever be able to make up. If they both continue investing the same amount for the next 25 years, Investor One could have as much as $1.5 million while Investor Two could have up to $2.4 million. To catch up, Investor One would have to invest an additional $500 per month for 25 years.
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This example makes it pretty clear that consistent, long-term investing is the way to build your retirement nest-egg. It’s a strategy that works in good markets and bad. It’s also easier said than done, as millions of investors proved over the last few years.
The good news is this: In stock market investing, nothing—not the good or the bad—lasts forever. Those investors will have their chance to stick to their guns the next time the stock market takes a dive—and it will.
Prepare for the Next Slide With Professional Advice
You can prepare for those tough times by working with a financial advisor who will show you how to stick to your long-term investing plan no matter what’s going on in the market.
You can find an advisor you can depend on through Dave’s nationwide network of investing Endorsed Local Providers (ELPs). Your ELP has earned Dave’s recommendation as an experienced professional who has been through the market’s ups and downs. Find your ELP today.