Investing can be a frustrating experience, whether you’re new to it or are seasoned at it. Imagine you worked really hard to pump money into your brokerage account only to see its balance decline following a stock market downturn. That’s a tough situation.
Similarly, you may find that despite a fairly stable and even thriving market, your portfolio just isn’t gaining value as quickly as you would’ve hoped. That, too, can be a hard thing mentally.
If you’re frustrated with your portfolio, or with investing in general, you may be inclined to call it quits. But before you do, you may want to heed some important advice.
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Patience is key when investing
In a recent Schwab survey, respondents were asked to identify the best investment advice they’ve received. And for 1 in 5, the answer was “be patient.”
That’s such an important thing when you’re investing, because you must realize that making money in stocks overnight is very difficult — so much so that most people fail at it. However, making money by investing over time is a different story.
Over the past 50 years, the stock market, as measured by the performance of the S&P 500 index, has generated an average annual return of 10%. But there were plenty of years during those five decades when the market did really poorly.
Between October 2007 and March 2009, the height of the Great Recession, stock values declined by about 50%. So let’s imagine you put $10,000 into a brokerage account in September 2007. Chances are, about a year and a half later, you would’ve been looking at a portfolio value of $5,000. That’s brutal. But remember this — the stock market managed to recover from the Great Recession and then some.
The 10% average annual return noted above accounts for years of strong performance as well as years of declines. That’s why it’s so important to be patient as an investor and keep your money in stocks over a lengthy period. If you give your money time to grow and your portfolio time to recover from periods of rockiness, you’re more likely to come out a winner.
But you can’t expect quick results. If that’s what you’re after, you should know that you risk taking serious losses.
Prepare to sit back and wait
It’s natural to want to see your efforts as an investor pay off. So if you put $10,000 into a portfolio a year ago and you haven’t made any money to date, it can be quite upsetting. But chances are, over time, your portfolio will gain value if it’s diversified. So don’t despair if you don’t see great results in the near term.
In fact, let’s say you invest $10,000 into an S&P 500 exchange traded fund (ETF) or a bunch of different S&P 500 stocks at age 25. If you manage to snag an average annual 10% return, you’re looking at a balance of about $453,000 in 40 years’ time.
But in five years’ time, you’re only going to be looking at about $16,000. That’s not such a huge gain. But you also shouldn’t expect large gains in short order.
All told, patience really is the key to being a successful investor. So if you’re hearing this advice now for the first time, take it to heart. And if you’re inclined to unload your stocks and stop investing because you’re not seeing results, don’t. Instead, pledge to wait things out. Chances are, you won’t regret it.
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