How Much Does a Volatile Stock Market Cost *You*?

The Smart Money Town Hall is in a couple of weeks, and I was looking at the stock market today- it’s kind of all over the place. Some days are up, others are down. That’s when the market is “volatile”; maybe not big highs/lows, but lots of ‘em and the market moves around a lot.

People dislike a volatile stock market for different reasons; it reduces consumer confidence, and since it’s hard to predict, companies will generally hunker down, invest less, and affect the economy negatively in that way 📉

But honestly, those things aside, there’s a different reason that I dislike a volatile market. Consider this: 🤔

The up days in a volatile market are awesome! Especially if you love the risk and the thrill of winning big 🏆

But what if you're like me? I'm pretty moderate, risk-wise; in general, women are more conservative than men in their investments, so I'm pretty normal, financially. (I make no other claims to normalcy 🤣)

So when I see the market go up and down, it makes my stomach hurt. And here's why:

Let's say you have $100,000 invested in the stock market. Let's say the market is volatile, and loses 10% in one year. You then have $90,000.

Let's say the next year is good- the market goes up 10%. $90,000 + 10% is... drum roll please 🥁... $99,000 😱

Your account manager can look you dead in the eye and tell you truthfully that your account earned 0%... And you still have *less money* than you used to 😫

You always need to earn at a positive rate, in order to make up for losses. Earning 5 or 10 or 15% on your money? You don't have 5 or 10 or 15% more cash in your brokerage/401k account... Ever 🤨

Let me repeat myself: every time you lose- you have to earn more in order to make up your losses- before you ever add to your account balance 😥

And in a volatile market, you are losing more *often*, because the market swings are rapid.

Let me say it another way- a volatile market can be as bad for your account balance, as a bear market. In a bear market, prices are falling, which reduces your account balance. But a volatile market prevents your account from recovering; you are losing money too often, and you always have to make up for losses whenever your account loses money. That will impact your long-term performance just as much as reduced stock values.

People really need to know these principles! But I don’t like leaving things on a negative note, so I will leave you with this thought: I don't like those losses, so most of my retirement money is in an account that never loses. So whenever I earn at a 5% rate... I have 5% more money.

Having your money in a risky vehicle like the stock market is not the only way to increase your retirement savings! Everyone should know that, and should know their options and their alternatives.

Now That's Smart Money 🧐