Sometimes it isn't easy to take what's good for us. In the world of investments, volatility, especially on the downside, can be very beneficial if individuals can avoid jumping ship at the bottom and, in fact, keep investing on the downside.
Consider 2 graphs:
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| Source: http://nces.ed.gov/nceskids/graphing/classic/ |
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| Source: http://nces.ed.gov/nceskids/graphing/classic/ |
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The first graph brings to mind the 2008 debacle followed by the subsequent rise to record stock prices. Graph 2 starts at the same spot and ends as well at record stock prices. Which produces the best performance for the long term buy and hold investor automatically buying into his 401(k)? Think about the buying in 2008,2009,2010 at low prices!
The point to think about is that the time path of markets in Graph 1 that chases many investors away and into cash is in fact what the astute investor building a nest egg wants.
The whole argument gets stood on its head of course for the retiree. Having to liquidate in 2008 was a standard of living changing event for retirees.
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