When Markets Dip, Don’t Drop Out

March 12, 2020

When Markets Dip, Don’t Drop Out

Asset class chart

This infographic explains how staying the course during market dips can be healthier for an investor's portfolio. It considers three types of investors over the course of 40 years:

  • Stalwart—A disciplined investor who continues to invest, no matter how the market performs.
  • Reactor—An investor who pulled his money out of the market in 2008 and kept it out. Continued to save 10% of his salary but didn’t invest it.
  • Waffler—After any year with negative returns, this investor moved her money out of the market but continued to save 10%. If the market was up after two years, she got back in and reinvested in a portfolio suitable for her age group.

A chart showing wealth accumulated from 1980–2019 indicates how each investor did over time. The Stalwart accumulated $1,102,281; the Waffler accumulated $615,349; and the Reactor accumulated $484,902.

Each investor saved the same amount annually. The difference was in the way they behaved during bear markets. The bottom line: the person who reacted the least to market conditions gained the most.