Welcome to one of investing's most powerful secrets: the magic of time!
You've learned about stocks, bonds, risk, and diversification. But there's one factor that can make the biggest difference in your investing success - how long you stay invested.
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Why do you think time might be an investor's best friend?
In the short term, stock markets can be incredibly bumpy. Prices swing up and down daily, sometimes dramatically. You might see your investments drop 10% one month and rise 15% the next.
But here's the magic: over longer periods, these short-term swings tend to smooth out into upward trends.
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How might this change your stress level about daily market movements?
Let's look at compound growth - perhaps investing's greatest superpower. When your investments grow, you earn returns not just on your original money, but on all the growth too.
$1,000 growing at 7% becomes $1,070 year one. In year two, you earn 7% on the full $1,070, not just the original $1,000.
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This creates a snowball effect - in one sentence, explain why compounding becomes more powerful the longer you stay invested.
Historical data shows the stock market has averaged about 7-10% annual returns over long periods (20+ years), despite many ups and downs along the way.
Someone who invested $1,000 in 1980 and left it alone would have far more than someone who tried jumping in and out of the market.
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What do you think might happen to someone who panics and sells during every market downturn?
This brings us to consistency versus market timing. Many investors try to "buy low and sell high" by predicting market movements.
But even professional investors struggle with this. Instead, consistently investing the same amount monthly (regardless of market conditions) often works better.
