By Craig Erwin, Ph.D.
Many investors dread September, known as the worst month of the year for stocks. The stock market often retreats in September, losing .5% on average, according to Ryan Detrick of LPL Financial. That may not seem like much, but most other months have September gains, on average, according to robusttrader.com.
It’s possible that the stock market won’t decline precipitously this September because, it has already fallen pretty hard in late August, and it can’t fall forever. So, the market might even hit bottom and start rising again sometime in September. And, if not in September, then maybe in October.
But if you are an investor who buys and holds stocks for the long term, you don’t have to worry about what the stock market does in September or October or any other month. Why? Because no matter what time of year it is, a stock market decline is the best thing that can happen to you. It allows you to buy stocks at lower prices.
Obviously you want the stock market to rise before you sell, but, if you’re 30 years old, you may not sell for another 35 years. What you should focus on now is buying. Just keep on buying for the next 35 years. What matters most then? How much money you save and invest and how much you pay for stocks. You want to save as much as possible and pay as little as possible for stocks. How? A good old fashioned stock market decline can help. So, a bad September for stocks would actually be a good September for you because you would pay lower prices for the stocks you buy. And when you sell stocks 35 years from now, many will be worth a fortune compared to their prices today.
Be careful what you wish for. If you are a stock market cheerleader, always hoping stock prices rise, you are shooting yourself in the foot. You are much better off if stock prices fall in the near term, so you can pick up bargains. If the stock market rises sharply, you will have to pay more for stocks and you will get fewer shares.
So, don’t fear the stock market in September. If it tumbles, like it frequently does, embrace the decline. The more brutal the decline, the more bargains you will get and the wealthier you will become in the long run. That’s a great way to build wealth. And the best part is that you won’t have to do a thing to benefit from the decline in stock prices. It’s effortless, as long as you’re already saving and investing regularly.
Does September scare you? Do you fear stock market declines? Are you saving and investing regularly?
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