It may seem strange to take investing advice from fairytales, but sometimes it works out.
If you don’t remember much from the children’s fairytale Rip Van Winkle, it’s the one where to avoid his wife’s nagging, the main character takes a drink from a stranger and then sleeps for several decades.
Just like Rip Van Winkle, the markets will go on without you just as the world went on without him. Markets will ebb and flow over the years, and historically in an upward trajectory over time. If you’re concentrating on the day-to-day movement of the market, you may drive yourself insane with worry. And when you have increased anxiety over that day-to-day movement, you may be more likely to making decisions based on your emotions, when the market has no emotional bearing to you.
Take A Look Back
If you take a look back at 20 years ago, in a time before iPhones when we were all using Blackberry phones, let’s look at what the markets were doing. The Dow Jones was somewhere around 10,315 and the S&P 500 was around 1,100. Over the next 20 years, we’ve gone through so many changes within the world, and so has the stock market. We’ve had a recession, a pandemic, wars, hyperinflation, and more.
Now if we fast forward to today, the Dow Jones sits around 40,000 and the S&P is around 5,331 – both around 4 or 5 times their values from 20 years ago. It’s important to keep in mind that this wasn’t a straight line up over those 20 years though. In fact, in 2008, the values were under the 2004 values. Again, when values dip they can cause panic, unless you’re following the Rip Van Winkle method and are attempting to “sleep” through the turmoil.
Life, and volatility, is going to happen no matter what. One of the best things you can do in investing is to do your best to ignore that volatility so that you don’t make rash decisions based on your emotions, and sometimes that means you need to “sleep” for 20 years so that you can just enjoy the potential uptick of the market, without the volatility.
By Andrew Rosen, Contributor
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