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Why investors should NOT panic

China turmoil adds to oil concerns
China turmoil adds to oil concerns

If you’ve looked at the stock market at all this year, you know it’s cringe-worthy.

Stocks are off to one of their worst starts in years. The Dow (an index of 30 of America’s biggest companies) is in the midst of its weakest January kick off since at least 1991.

Time to panic? Hardly.

There are plenty of reasons to relax, especially if you are a U.S investor. Here are the top two:

1. America’s economy is still in good shape.

2. Since World War II, investors who stayed in stocks for at least 15 years made money.

The U.S. economy looks good

America’s stock market hit an all-time high in May 2015. Even with all the turmoil since then, the market is less than 10% below that record level. That’s pretty good.

We aren’t anywhere near a “bear market” (a 20% drop), and we’re not even in a correction (a 10% drop).

Really bad stock market downturns typically occur when the U.S. economy tanks or the Federal Reserve makes a terrible call on interest rates.

Right now, the U.S. economy is growing. It’s not rock star growth, but 2% to 2.5% a year is solid, and the Fed is being very cautious.

More importantly, businesses are still hiring. Over 2.3 million jobs were added last year (the latest data on hiring comes out Friday and it’s widely expected to show more jobs added).

While China’s slowdown is a concern, remember that by far and away the main driver of the U.S. economy is Americans buying goods and services. There are encouraging signs consumers are spending. Auto makers just sold the most cars ever in 2015.

“We expect domestic demand in the U.S. to remain reasonably healthy — a very important variable for corporate revenue growth,” says David Donabedian, chief investment officer at Atlantic Trust.

Related: Is this another 2008 for the stock market?

Stocks make money over time

An even more fundamental reason to relax is that history is on your side. Staying in the market pays off, even if it gets ugly for awhile.

Investors made money over every 15-year period since World War II. That’s according to S&P Capital IQ analyst Howard Silverblatt.

He ran the data on S&P 500 performance for every 15-year timeframe from 1945 to 2015, and CNNMoney verified it.

Even if you put your money in the market right around the time it hit a peak like 1999, you earned your money back — and then made some — within the next decade if you stuck with stocks.

Over many 15-year time frames you more than doubled your money.

Get a plan and stick to it

Fidelity Investments ran a similar analysis. It looked at the performance of investors with a lot of stocks in their portfolio versus those with a lot of bonds.

Fidelity found the average annual return for investors with at 85% in stocks and 15% in bonds is 9.6% since 1926. That doesn’t mean you make money every year, but the up years outweigh the down years.

Conservative investors who have only 20% in stocks and 80% in bonds and cash had an average annual return of 6% over time. The conservative portfolio doesn’t make as much money over time, but it also doesn’t lose much in the terrible years.

The key for most Americans — especially people investing mainly for retirement — is to figure out a plan (how much you want in stocks and how much you want in bonds) and stick to it.

“Would the advice we give anybody today be any different than what we would give them last year? The answer is no,” says John Sweeney, executive vice president at Fidelity for retirement and investing.

CNNMoney (New York) First published January 7, 2016: 2:43 PM ET



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