This Week’s Stock Market Boost Shows Why You Shouldn’t Worry Too Much About Your 401(k)

• This week the stock market had a scary day on Monday and a great day on Thursday.

• Temporary declines are part of the normal stock market cycle.

• Long-term investments in the market usually recover after a period of crisis, a financial planner said.

THE stock market slowdown The price rally Monday was sparked in part by a surge in panicked speculation that a recession was coming, and with it fears about what the selloff could mean for retirement accounts such as 401(k)s, which are often heavily invested in stocks.

But on Thursday, the headlines were singing a different tune, as The S&P 500 had its best day ever Since 2022, the Dow had its best day in three weeks, and the Nasdaq was up nearly 3% at the end of the day.

So what do these wild swings mean for people worried about what the future holds? the ups and downs of the stock market What does this mean for their investments?

“Temporary market declines like this are completely normal and expected,” Gideon Drucker, president and financial planner at Drucker Wealth, told Business Insider in an email Tuesday morning after the market crash.

“In fact, this is what we are all signing up for when we invest in the stock market,” he said, adding that on average, the stock market loses money once every four years and that fluctuations of more than 14% can be expected.

According to data According to Aswath Damodaran, a finance professor at New York University, over a 95-year period, from 1928 to 2023, the value of investments in the S&P 500 declined in 25 of those years. That’s about one year out of every four.

“Despite all of this, the stock market has made money in every 15-year period in history and has far outpaced inflation over the long term,” Drucker said, “and that’s why we invest.”

He added that as long as you have a well-established short-term savings and emergency fund, stock price declines can be a good time to buy. Think of it as the fact that some of the world’s most valuable companies are being offered at a discount.

“For someone in the accumulation phase of their life, the lower these prices go, the more attractive long-term holdings of these companies become,” he said.

The worst thing you can do in an economic downturn is to panic and sell your stock investments, Drucker said, adding: “There hasn’t been a single market correction in history where you could have profited from selling your stock positions.”

He added: “Selling is literally the only way to turn a temporary decline into a permanent loss.”

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In other words, as long as you have enough cash to feel comfortable and your needs are met, even in a big market downturn, you shouldn’t worry – and it’s good to remember that you’re in it for the long haul.

Because, overall, a long-term bet on the U.S. economy is generally a safe bet.

Read the original article on Business Insider