Why a losing stock market can be a win for investors

If the economy remains strong, any fluctuations this year are likely to be short-term, emotional reactions from which the market will bounce back.

If earnings going to grow and the market were to stay flat, that just means the stock market is becoming a better value.

Why? Because when a company is earning more per share but the market is flat, investors are paying the same price for shares that are now worth more.

When the market is down, you can buy on sale

Most retirement investors use a strategy called dollar-cost averaging, even if they don’t realize it: They invest a set amount of money on a regular basis, no matter how the market is performing.

This strategy has benefits, and one of the biggest is that during down markets, your money goes further — you’re able to purchase more shares for the same amount of money.

Even when the market is fairly flat you’re still buying at a decent price, which will help you in the future when the market starts to grow again.

If you have extra cash, a downturn is an opportunity. If you have money on the sidelines (even as little as $500) or room in your budget to increase 401(k) or IRA contributions, you’ll want to look for opportunity in those market pullbacks.

Unless there’s some fundamental change in the market — something has happened — it’s a sentiment change, and that should be a buying opportunity for investors. This is especially true if you’re buying diversified vehicles, like index funds. As the market moves lower, you’re going to be getting some deals.

Take advantage by simply buying more of the index funds you already invest in or, if you’ve done some research and see value in a particular asset class, such as my Watch List on this site, add it to your investment mix.

Retirement investors should set a plan and stick to it, because day-to-day fluctuations matter very little over a long time horizon.

Even when you look at 2008, when we saw a big drop, the people who got hurt were those who got out of the market and then got back in when it recovered. Those who stayed put — and, in some cases, bought more — did well or extremely well.

Fidelity data show that investors who stuck it out between September 2008 and March 2010 saw their account balances go up by close to 22%, despite the market struggles. Those who fled the market at the end of 2008 or beginning of 2009 and stayed out through March 2010 lost an average of close to 7%.

Source: Why a losing stock market can be a win for investors

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