We have to accept that these shocks will happen. We should prepare for them rather than try to predict them. This time there is inflation, fear of a recession, a war in Ukraine, and increased volatility. We don’t know when this will end. We also won’t know exactly what will cause the next shock or when it will occur. The only thing I can guarantee is that it’s going to be a surprise (because if it weren’t, the market would have priced that in).
When you can be a long-term investor and think in terms of decades rather than years, you have the greatest chance of capturing the power of compounding. Those little extra gains add up over time. It helps explain why over the past 95 years (including all those shocks that have happened), the return for the general stock market has been around 10% a year.1
Diversification does not eliminate the risk of market loss.
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