In December, the S&P 500 (an index which tracks 500 of the largest companies in the U.S.) declined over 12%, and if you have been watching your investments, you’ve most likely seen their value go down by hundreds if not thousands of dollars.
No one enjoys watching their investments lose value, and many people will sell their stocks and pull their money out to stop the bleeding. This is the last thing long term investors like you and I should do.
Imagine you bought 10 apple trees for $100 apiece. You sell the apples they produce every year for $5 of income per tree, and you plan to sell your apple tree farm in 40 years for $1,000 per tree. Six months after you buy your apple trees, you hear that the price of a new tree has dropped to $50.
While disappointed that you didn’t buy your trees for $50 each, you won’t dig up your $100 trees and go sell them for $50 (which is what people who sell their investments when the stock market goes down essentially do). Instead, you should go buy more $50 trees because you know they will still make $5 per year and will be worth $1,000 apiece in 40 years.
Likewise, when the stock market goes down it represents a sale for long term investors. Similar to the hypothetical apple tree farm, our investments will still produce income every year (in the form of dividends) and will still be much more valuable decades down the road.
So go buy yourself some shares of VTI, and save 12% during the stock market’s holiday sale!
#MoneyGoals
(Pictured: Transition defense provided by Sammy J and I. January, 2014)
What if I don’t like apples?
Hi AppleH8er_23 (more commonly known as RF737), if you don’t like apples you can substitute orange or peach trees, or really any other asset that produces a valuable output!