Would you agree that the stock market has been volatile in the last six months?
As you may have guessed, that’s a bit of a trick question. Most people would say that, yes, the stock market has been very volatile since early November 2008.
For example, just from November 7, 2008 to November 20, 2008, the S&P 500 index dropped 19%. It then rallied 24% by January 6, 2009.
But, that was just a tease. Between January 6 and March 9, the S&P 500 index dropped a frightful 28%.
And, just when people thought the financial system was coming to an end, the index turned around and proceeded to rise a whopping 37% from the March 9 low to last Friday.
It’s enough to make your head spin.
But, let’s assume for a moment that you went into hibernation for the past six months and slept right through this volatility. Would you wake up happy or sad about your portfolio?
Well, if your portfolio performed similar to the S&P 500 index, then you’d wake up essentially the same as you went to bed, meaning, there was no net change in your portfolio. Surprisingly, from November 7, 2008 to May 8, 2009, the S&P 500 index moved less than 1%.
That’s right, after netting the 19% drop, the 24% gain, the 28% drop, and the 37% gain, the index is essentially flat.
One of the keys to being a successful investor is to get neither too depressed when the market is down nor too euphoric when the market is up. Checking your portfolio on a daily basis can lead to a daily dizzy spell while checking it on a less frequent basis may help keep you on an even keel.
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